If you’re paid biweekly, you usually receive 26 paychecks in a given year. It seems pretty straightforward – except that every 11 or 12 years, because of our calendar system and leap years, there are actually 27 pay periods in the year.
Does this mean you’ll get an extra paycheck in 2020? Probably. Does this mean you’ll earn more than your annual salary in 2020? Or will the amount of each paycheck in 2020 be lower than in 2019? It depends on how your employer will manage this unusual year.
Some employers may choose to divide employees’ annual salary over 27 pay periods instead of 26. This means that gross pay would be 3.7% lower each pay period during 2020 (although you’d make the same total salary).
Other employers will keep all biweekly paycheck amounts the same – except they’re issuing 27 paychecks instead of 26. This means you could receive an additional paycheck in 2020 and earn more than your annual salary.
For example, if you make $50,000 a year, your biweekly gross pay over 26 pay periods is $1,923.07, minus any deductions like health insurance, 401(k) contributions and taxes. But in a year with 27 pay periods, your biweekly gross pay would be $1,851.85 – a reduction of $71.22 (3.7%) per pay period.
On the plus side, if your employer instead chooses to keep your biweekly pay the same, then you would receive an additional paycheck of $1,923.07 and earn total annual gross pay of $51,923.07 in 2020.
If your employer hasn’t discussed its plans for the extra pay period in 2020, now is a good time to ask, so you can be prepared for any changes.
At PenFed, our 27th paycheck will fall on December 31, 2020. We opted not to reduce the amount of each paycheck, to avoid any negative impact for our employees.
Whether this is your employer’s policy or not, it’s important to find out now how your employer is handling paycheck deductions for benefits like health insurance, vision insurance, dental insurance, hospital benefits and others. Some employers will choose to divide the annual deductions by 27 – which means they’ll be taking slightly less out of your paycheck each pay period. Others will be using a “premium holiday” model, in which no deduction will be made on a predetermined date, and deductions will only be taken out of 26 pay periods.
Similarly, federal income tax withholdings might differ on your paycheck as well.
How should you prepare for these changes? You’ll want to review your 401(k) contributions and any other automatic deductions. You may opt to change your deductions to save slightly less each pay period, if your biweekly take-home pay will be a little lower than you anticipated. Or, you might want to use this as an opportunity to save more next year, especially if your employer matches your contributions to your 401(k). If you decide to keep the same biweekly deductions as you had in 2019 and your payroll system is not set up to automatically stop deductions once you reach the maximum employee contribution, make sure your annual contributions for 2020 don’t exceed your 401(k) limit.
This is the perfect opportunity to refamiliarize yourself with your paystub and the deductions which are being taken out of your paycheck. Does your employer offer benefits like disability or critical illness insurance that you have been meaning to sign up for? Do you have access to a wellness reimbursement program that would cover your monthly gym membership? Can you take advantage of stock options, tuition assistance, volunteer paid time off, or other benefits?
Now is also a great time to review your retirement savings plan. Employees often set automatic deductions to accounts like our 401(k)s and IRAs and then forget about them, but you may not have increased your contributions over the years as your salary has increased.
It’s important to note that employees who are paid monthly and semimonthly won’t be affected by these changes in 2020. But if you receive weekly or biweekly paychecks, you’ll want to ask the right questions to help you prepare for a financially successful year.
Julia Moreno is vice president of human resources operations at PenFed Credit Union.