How to Handle Payroll Smoothly if Payday Falls on a Holiday

Ever checked your calendar and realised payday falls smack on Christmas Day or another bank holiday? You’re not alone. When payday lands on a holiday or weekend, many businesses wonder what to do.

When payday falls on a holiday, your employees immediately wonder one thing: "Am I still going to get paid on time?"

Impact on employee trust & morale

Missing the regular payday doesn't just cause minor annoyance, it directly affects your employees' trust and morale. Think about it: your team relies on timely payment to cover their bills, rent, and everyday expenses. If payday falls on Christmas Day, Thanksgiving Day, or other federal holidays, and your employees don’t receive their payment on time, stress levels spike quickly.

Delayed pay can lead to:

• Financial anxiety among employees

• Increased questions flooding your payroll administrator or HR department

• Damage to your employer brand, making recruitment and retention tougher

Ensuring employees receive their pay without delays, even when payday lands on a bank holiday, is crucial to maintaining a positive, productive workplace.

Legal frameworks

Knowing your legal obligations ensures you stay compliant when payday lands inconveniently.

UK: HMRC reporting and FPS rules

If payday falls on a bank holiday in the UK, you can process payroll and pay employees one business day earlier. However, your payroll provider must ensure the FPS sent to HMRC clearly shows the regular pay date, not the day employees actually get paid. This avoids issues with Universal Credit and benefits claims. HMRC offers easement guidelines to clarify handling holiday payroll correctly, helping your payroll administrator avoid mistakes.

US: federal vs state payday laws

In the US, there isn’t a federal mandate dictating payday frequency or specific dates. However, individual state laws can vary significantly. For instance, if payday falls on Labor Day or Martin Luther King Jr Day, some states require payment to occur the preceding Friday, while others allow it on the next business day. Your HR department should verify your state's specific guidelines to stay compliant.

Common employer options when payday collides

You have three practical ways to handle situations when payday falls on a holiday. Let's explore each briefly.

Paying early

Running payroll a business day earlier is a popular choice. This ensures direct deposit transfers hit the employee's account before federal reserve banks and most banks close for the holiday.

Pros:

• Employees receive their money early, improving trust

• Avoids payment delays caused by closed financial institutions

Cons:

• Potential fees from your payroll provider for adjusting the payment schedule

• Need to submit payroll earlier, potentially compressing the payroll schedule

Consider checking the electronic network processing timelines like ACH and confirm processing deadlines with your bank or payroll provider.

Paying late

Choosing to pay late is allowed, provided you clearly communicate this decision to your employees. For example, if payday falls on Columbus Day, Veterans Day, or Juneteenth National Independence Day, paying employees the following Monday is legally acceptable but risky.

Risks:

• Employee frustration or dissatisfaction

• Possible negative impact on your company's policy reputation

• Increased queries to your HR department

Clear, proactive communication can reduce friction if you go this route.

Sticking to schedule

Many businesses opt to stick to their payroll schedule regardless of federal holidays. Typically, this means employees get paid the next business day after the holiday.

• For example, if payday falls on Memorial Day, employees would receive payment the following business day.

• No special arrangements or extra fees required, simplifying the payroll process.

While straightforward, ensure employees are aware and prepared for the slight delay.

Payroll best practices and policies

A bit of planning now saves payroll headaches later, especially around holidays.

• Maintain consistent policy and calendar: Create and share an annual payroll calendar clearly outlining scheduled paydays, especially highlighting any that coincide with upcoming holidays. Clarifying your company's policy on early, late, or on-time payments keeps expectations clear and reduces payroll department questions.

• Automate reminders & workflows: Set alerts through your payroll software to remind your payroll administrator about submission deadlines, especially when payday falls on federal holidays. Automating these workflows reduces human error and ensures timely payments.

• Clear employee communication: Transparent communication is crucial. Notify employees in advance through newsletters, email alerts, or FAQs outlining what to expect if their regular payday lands on a bank holiday. Detail whether their direct deposit will arrive a day early, on the same day, or the following business day.

A simple, clear summary might look like this:

Using visuals like this makes it easier for everyone to understand exactly when they'll get paid.

Handling payroll systems and third-party providers

Managing payroll doesn't have to be stressful, even if payday falls on a holiday, just ensure your payroll provider is prepared.

Confirm processing timelines

Always double-check processing deadlines with your payroll provider, especially if payday falls on a bank holiday. For direct deposit transfers, ask specifically about BACS (UK) or ACH (US) processing timelines:

• Confirm exact submission cut-off times.

• Add buffer time, ideally one business day earlier than the regular pay date.

• Remember that financial institutions and federal reserve banks might close early or entirely on certain holidays like Martin Luther King Jr Day or Memorial Day.

Agree escalations and expedited fees

Sometimes, despite careful planning, you may need payroll processed urgently. Your payroll administrator should clarify with your payroll provider about:

• Cost for expedited processing.

• Situations where escalated processing is needed, e.g., if regular pay date falls unexpectedly on a holiday you overlooked, such as Columbus Day or Juneteenth National Independence Day.

• Payment method options (such as same day direct deposit hit via electronic network transfers).

Align HMRC/IRS submissions

Compliance is key. For UK employers, always ensure your FPS submission reflects the regular payday rather than the adjusted payment date, preventing complications with HMRC reporting. In the US, double-check your RTI/state filings to match payroll payments accurately, respecting each state’s payday frequency laws.

Sector-specific notes

If your UK workforce includes part-time staff or employees on irregular hours, bank holidays require extra care.

New 2024–25 holiday pay reforms

Starting from 2024–25, UK holiday payroll rules have changed:

• Holiday pay accrual now set at a flat 12.07%.

• Rolled-up holiday pay might be permitted under certain conditions.

Make sure your payroll department understands these changes clearly to stay compliant and avoid costly payroll mistakes.

Updating contracts & payroll calculations

To keep pace with the reforms:

• Update employment contracts clearly defining how holiday pay will be calculated and paid.

• Adjust your payroll process to incorporate accurate accrual calculations.

• Regularly communicate these policy changes with employees, ensuring transparency.

Accounting & tax implications

When payday lands on a holiday, accurate payroll accounting prevents headaches later.

FPS: original vs actual payday

For UK payroll administrators, it’s crucial that your Full Payment Submission reflects the employee’s contractual payday—even if employees get paid a business day earlier. This ensures correct alignment with Universal Credit, avoiding unintended employee benefit disruptions.

US tax/timing for early paycheck

In the US, running payroll earlier can impact tax withholding. If your regular pay date falls on a holiday and you choose to run payroll earlier (e.g., paying employees the preceding Friday):

• Withholding calculations could differ slightly.

• Ensure your payroll provider accurately adjusts tax calculations based on actual payment date.

• Communicate clearly to employees about potential minor withholding differences.

Holiday/universal credit impacts

Accurate pay dates also impact employees who receive benefits like Universal Credit. Incorrect reporting or shifting payment dates unexpectedly might:

• Affect employees’ monthly income claims.

• Create financial uncertainty for employees relying on regular benefit payments.

Leap years & calendar quirks

Even the calendar itself can throw payroll scheduling surprises, particularly in leap years.

Handling feb‑29 and extra days

Leap years add an extra day to the payroll schedule, which could disrupt weekly and monthly payment routines:

• Weekly pay frequency: clearly state if employees receive an additional day’s pay in leap years.

• Monthly payroll: clarify whether monthly salaries remain constant or slightly adjust.

Adapting annual schedules

When planning your payroll schedule each year, always consider:

• Leap year adjustments to avoid confusion around pay frequency.

• Clearly marking pay periods, highlighting leap year implications early in your payroll calendar.

Simple clarity makes payroll smooth, no matter how complicated the calendar gets.

Simplify your payroll schedule, even when payday falls on a holiday

Handling payroll when payday falls on a holiday can create unwanted stress, especially if your payroll process relies on manual input. Shiftbase helps your HR department smoothly manage these tricky scenarios. Our intuitive platform specialises in employee scheduling, accurate time tracking, and efficient absence management. With Shiftbase, you'll quickly access vital information (like hours worked, overtime accrued, and leave balances) to effortlessly run payroll earlier if a holiday falls on your regular payday.

Say goodbye to confusion over direct deposit transfers and deadlines set by financial institutions. Our payroll integration ensures timely, error-free salary processing, even during tricky periods like Christmas Day or Labor Day.

Ready to simplify holiday payroll headaches? Try Shiftbase free for 14 days and keep your employees happy every payday!

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