There we were, on the deck of a pool at 2:30 in the afternoon. We had arrived early so that we could get changed in the family locker room; it was my daughter’s first swim lesson. We were about to learn that the 30-minute lesson was actually scheduled to start at 2 and that we had completely missed it. The only thing worse than completely missing a deadline is when someone else is hurt by your mistake. Fortunately, our daughter was only 8 months old and didn’t seem to notice. But there are plenty of other situations where an unexpectedly close deadline can lead to hardship when it’s missed.
Employers face this possibility each time they need to run payroll. Having a rhythm or routine is the best way to ensure you don’t miss a payday, but even the best routine can be rendered ineffective when your pay date gets moved up because of a bank holiday. Depending on when the bank holiday falls, your window for completing payroll on time could shrink, or even disappear entirely. To prepare yourself for the curve balls that bank holidays throw at payroll, we need to look at why they create issues and what you can do to holiday-proof your process.
How does a bank holiday affect small business pay schedule?
The first step in understanding how to plan for a bank holiday is to understand why they are affecting your pay schedule at all. What makes this tricky is that most payrolls, in some part, rely on the Automated Clearing House (ACH) network. In the US, businesses rely on the ACH system to facilitate direct deposits of employee’s checks into their bank accounts. When a payroll is processed that uses direct deposit, an ACH file gets sent to the bank. Each bank works differently however they all have a common denominator: the bank will reject the ACH file and refuse to pay out any funds if the pay date specified on the file coincides with a non-business day OR doesn’t allow sufficient time for the funds to settle, meaning same day transactions are off the table. Given that most banks close at 5 p.m., the cutoff time for transactions that are to be processed the following day typically falls in the early to mid-afternoon. For instance, if your intention is to pay your employees on a Friday, you need to send the ACH file to the bank before the Thursday cutoff time.
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Now, let’s talk about those pesky bank holidays. If a bank holiday falls on a Friday, guess what? Friday can no longer be your payday. It’s the standard practice to shift your pay date to a business day before the holiday. That ensures the best payroll timing.
As an employer, if you carve out time to do payroll on Wednesday afternoons, you may be in trouble when a Friday holiday comes around. Especially if the holiday caught you by surprise and you thought you had all day Wednesday to complete it. In this case, your employees must wait until after the long holiday weekend to get paid. Let’s look at one more example, but this time the company has a semi-monthly pay frequency that pays on the 10th and 22nd. As the employer, you may think that it would be good to think of your days to submit payroll as the 8th and the 20th, but that could get you into some trouble. Look at what happens to the cutoff day if the 22nd is a Tuesday with a Monday holiday.
A holiday can mess up your typical payroll schedule in many different ways. Each pay frequency has its own potential challenges, but there is always one scenario that is worse than any other: a holiday that makes you run your payroll on or before your pay period end date. In this instance, your payroll is scheduled to run before your employees have worked the entire pay period.
Create a Buffer for Peace of Mind
In the above example, the employer will need to verify that their hourly employees get paid the correct amount. The challenge lies in making sure the method used is compliant with both federal and state labor laws. Given to varying nature of these laws, it’s always best practice to incorporate a buffer of at least five days between your pay period’s end date and the actual pay date. With this five-day buffer, your cutoff day will consistently fall after your pay period concludes. Extending this buffer to six or seven days offers more flexibility and peace of mind. Once you’ve established this buffer, the most foolproof way to ensure your pay date remains unchanged is to process your payroll the day after your pay period ends. This approach guarantees that your pay period always concludes on the same day of the week (for weekly and bi-weekly payrolls) or day of the month (for semi-monthly and monthly payrolls). Attuning to your pay period in this manner guarantees that you stay ahead of your payroll responsibilities, regardless of circumstances.
A Bank Holiday Lesson For Employers
In the ever-moving world of payroll, bank holidays can keep you on your toes. But armed with the knowledge we’ve shared today you’re better equipped to face these challenges head-on. Remember, there’s more than one way to handle payroll effectively and it’s essential to find the methods that align with your business and comply with labor laws. Don’t forget to introduce a buffer to your pay period, making sure that your employees receive their hard-earned money without any hiccups.
We all want to avoid disappointing others, especially our employees. Missing the mark on payday, not once but twice can leave your team feeling dissatisfied and looking elsewhere for opportunities. So, why put yourself in a situation where a bank holiday catches you off guard? Take proactive steps and explore your options.
If you find your payroll process to be a bit puzzling, check out this article You Have a Complicated Payroll – What can you do about it? for some solutions. And if you still have questions or need expert guidance tailored to your business’s specific needs, remember that Whirks is here for you. We clarify and simplify your payroll process, allowing you to refocus on what truly matters. Schedule a call with us today.