With Memorial Day now behind us, the next big holiday is Independence Day. The July 4th holiday will be here sooner than you know. The question for your payroll department is this: is staff ready to handle the challenges that come with accounting for holidays? Such challenges might not be recognizable unless you handle payroll for a living.
Forbes contributor Cameron King wrote a great piece at the end of May talking about one of the problems that arise around holidays: making sure that employees get paid on time even when payroll processing falls on a holiday.
A good way to address holiday pay issues is to outsource payroll to a third-party provider like Dallas-based BenefitMall. In the absence of outsourcing, payroll departments have to pay attention to the little things. Otherwise, a company may find itself inconveniencing employees or, even worse, breaking the law.
Accounting for Overtime Pay
As you already know, federal law requires that all nonexempt employees be paid overtime for any hours in excess of 40 worked in a given workweek. That requirement does not change on weeks that involve holidays. If an employee exceeds the 40-hour workweek during a week that includes a holiday, overtime pay still required.
Here’s where it gets tricky. Federal law does not mandate companies pay extra overtime for working on holidays. Nor are employers required to offer pay extra for standard holiday hours. The law considers holidays as regular working days. However, your company may have certain holiday policies in place.
A good example is a policy that stipulates employees must work the day before and after a holiday in order to qualify for holiday pay. Once that policy has been implemented, the employer must stay true to it until the policy is either altered or done away with.
If your company offers paid holidays, does it also pay time-and-a-half (overtime pay) as though the holiday time were actual work time? If so, company is in the minority. The vast amount of U.S. employers stick to the letter of the law when calculating working hours and overtime pay.
Running Payroll on Time
The bigger concern, according to King, is making sure that payroll is run on time during holiday weeks. King cited Memorial Day as a good example. If Memorial Day falls on May 31st, that last day of the month would be a bank holiday on which financial transactions would not be processed. A company that pays employees on the 15th and last day of the month would discover they could not actually make payment on the 31st.
That could have a ripple effect on employees expecting their payment on the last day of the month. Not being paid on the 31st could cascade into employees missing their own scheduled payments, bouncing checks, or whatever. King says that payroll departments have to account for these kinds of things during holiday weeks.
Hand-in-hand with not paying employees on time is not making income tax, FICA, and other government payments on schedule. The government is even less forgiving than employees. So missing payments during a holiday week can set a company up for serious problems.
Again, the best way to avoid these kinds of problems is to outsource payroll to a third-party. It is the payroll provider’s responsibility to account for holidays and anything else that could get in the way of running payroll and paying employees.