Payroll in Practice: 6.30.2025

Question: What options do employers have in years with 27 or 53 pay periods?

Answer: For salaried workers paid on a weekly or biweekly basis, there are generally 52 or 26 pay periods (if paid current) or paydays (if paid in arrears) any given year. Every five to 11 years, there is an additional pay period or pay date. This does not happen for employees paid on an hourly, daily, or stint basis or for salaried workers paid on a semimonthly or monthly basis.

There are several options for dealing with this extra period, but first, a reminder about a basic accounting principle.

In an apocryphal story, a successful restauranteur’s third child earned an accounting degree and offered to review the restaurant’s accounting system for potential improvements. The system was simply a cash register and two cigar boxes, one for unpaid bills and the other for payment receipts. The son exclaimed, “How do you know what your profits are?” The father replied, “Son, I arrived in this country with nothing but the pants I was wearing and two dollars in my pocket. Since then, your mother and I established this restaurant, we live comfortably, have a nice house, a car, a cottage on the lake, and we raised and educated three children. Your brother is a doctor, your sister is a lawyer, and you are now an accountant. That, minus two dollars and the pair of pants, is the profit.”

A basic principle of accounting is the time-period assumption, which holds that a company can present useful information in time periods shorter than the life span of the business, such as years, quarters, and months. Payroll uses hourly, daily, weekly, biweekly, semimonthly, monthly, quarterly, and annual periods. The challenge for payroll is that the various periods do not always correspond to each other or with the annual period.

To determine hours worked, payroll professionals routinely deal with such things as preliminary and postliminary activities, travel time to job sites or between time clock and workstation, overtime hours, missing time stamps, idle hours for repairs or set up, emergencies, intermittent FMLA leave, and Daylight Saving Time changeovers when clock hours might not match actual hours.

Workers are sometimes paid for days they do not work, including vacation, holidays, paid time off, sick leave or other leave, partial days, and pay based on stints or standard hour systems. Daily rates are usually based on expected workdays per week such as four or five, which equate to 208 and 260 days per year respectively.

While calendar weeks and workweeks are seven days, work schedules may be based on other schedules, such as the nine-day Kelley work schedule for emergency workers. Neither calendar weeks nor workweeks fit evenly into months or the calendar year.

Fringe benefits like 401(k) plans, medical flexible spending accounts, cafeteria plan pretax deductions, and additional income for personal use of a company vehicle or excess group-term life insurance, may affect reported compensation. Allocations of benefit deductions are affected by how many pay dates occur during a month.

The year is roughly 365.25 days long. Fifty-two weeks is 364 days, 1.25 days short of a calendar year. Semimonthly, monthly, and quarterly periods can fit evenly into a calendar year, but the number of days, workdays, weeks, and workweeks vary by month. Weekly and biweekly pay periods do not necessarily match workweeks, and the date compensation is paid does not necessarily fall within the pay period.

For example, a new employee starts work on July 1, 2025, with an annual salary of $52,000, paid biweekly. The first workweek is a calendar week starting on Sunday, June 29. Each pay period consists of two workweeks. The first pay day is July 18, the Friday following the end of the biweekly pay period. The employee’s $26,000 salary for half a year comprises $2,000 for each of the 13 remaining pay periods in 2025. The pay date for the 13^th pay period is Jan. 2, 2026. The last four days of December are included in the workweek ending on Jan. 3, 2026.

The employee’s normal workdays are Monday through Friday. The salary for the June 29 to July 11 pay period is reduced by 20% to $1,600 because the employee does not work on June 30 or July 4. Similarly, the earnings for Dec. 21 to Jan. 3 attributable to 2025 is also only $1,600 because two workdays in that period occur in 2026. The employee’s total salary for 2025 is $25,200, which is the $26,000 half-year salary minus the four days off. The amount reported on Form W-2 is $23,600. The difference is the $1,600 earned in 2025 during the Dec. 21 to Jan. 3 pay period but not paid until Jan. 9, 2026.

Options for dealing with 53 or 27 pay period years include:

• Paying the computed pay period amount and provide the employee with a detailed explanation of any differences between the employment agreement amount and the Form W-2 amount.
• Referring to salary amounts by pay period instead of annually.
• Using semimonthly or monthly pay periods for salaried workers.
• Continuing to pay the same amount for the additional pay period, which will overpay the employee.
• Continuing to pay the same amount but skip the payment for the additional period, which might cause hardship for the employee and may be illegal.
• Dividing the salary amount by the number of payments (pay days) for the year. The employee’s pay per period will be less for the year with the extra payment and more for other years. This method ignores workweek overlap at year end. Accuracy might be an issue.

The 52- or 53-week tax year is the fiscal year option for computing revenue and expenses for income tax purposes described in Internal Revenue Service Publication 538, Accounting Periods and Methods. It can be used either in cash- or accrual-basis systems, but payroll information is reported for calendar quarters and calendar years. The instructions for Form W-2 specify that reported amounts must be based on wages paid during the calendar year.

This column does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., or its owners.

Author Information
Patrick Haggerty is the owner of a tax practice in Chapel Hill, North Carolina, and an enrolled agent licensed to practice before the Internal Revenue Service. The author may be contacted at phaggerty@prodigy.net.

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