A leap year occurs every four years when there is an additional day added to February, making it 29 days instead of 28. Leap day will occur on Thursday, February 29, 2024.
Impacts on payroll
Salaried and monthly paid employees are typically not affected by leap year. Weekly, biweekly, and semimonthly pay periods are the most impacted. Leap year can change the frequency of pay periods for biweekly employees from 26 to 27 or for weekly employees from 52 to 53, potentially impacting the way employees receive their pay.
For the additional pay period, the majority of employers typically choose to maintain their regular pay schedule without adjusting it for the extra cost. Alternatively, some organizations may choose to modify their pay frequency or date to accommodate a leap year.
Be sure to communicate with to your impacted employees about how you intend to handle leap year payroll and how it will affect their pay.
Impacts on benefits
Employers may have to recalculate health plan deductions since they are determined by the number of pay periods. Additionally, a leap year can impact flexible savings accounts (FSA), health savings accounts (HSA), and employee contributions to 401(k)s.
The IRS recently concluded the finalization of reporting regulations in accordance with the Affordable Care Act. This establishes a 30-day automatic extension which extends the deadline from January 31 for employers to provide Form 1095-C to employees. Applicable large employers are required to provide Forms 1095-C to their employees by no later than March 2. However, due to the occurrence of a leap year in 2024, the deadline for this year is now March 1, 2024.
How to prepare for leap year
Inform your employees: If you know that your employees’ pay periods will be altered, then tell them as soon as possible. This will reduce confusion among employees and keep everyone on the same page.
Plan for the extra pay period: Since there will be an additional pay period, then ensure that your company has the funds to cover that extra pay period. For leap year, it is important to plan ahead and be prepared financially.
Keep records: Keep records of payroll expenses and tax withholdings. Maintaining accurate records will allow you to provide documentation in the case of an audit.
Stay compliant with tax laws: Be sure to withhold and report payroll taxes correctly for the additional pay period.
It is important for employers to stay organized and compliant with the additional pay period during leap year. If you have any questions regarding the impacts of leap year, reach out to us at firstname.lastname@example.org.