Attention: Businesses Using a Bi-weekly Pay Schedule

Businesses using a bi-weekly pay schedule should be aware that calendar year 2026 will have 27 pay days and, subsequently, 2027 will have 25. This bump in pay days is because the first pay day in 2027 is Friday, Jan. 1, which is a bank holiday. This change in pay days can affect employee deductions.

“I would try to figure out a way to advance that pay through my payroll company and still count that first pay as being in 2027,” says Margaret Rom, bookkeeper, Barnes Wendling CPAs. “Otherwise, people will have a higher pay in 2026 and less in 2027 and it will be confusing.”

Rom also says this change in pay days can affect deductions.

What deductions will be affected by this change in number of pay days?

Employers should make certain that they don’t over- or under-collect funds for the following:

Benefit Premiums (health, dental, vision): Premiums are usually calculated for 12 months and are typically spread over 24 or 26 pay periods. If there's an extra pay period, employers often implement a "deduction holiday" on the final paycheck of the year for these benefits to avoid over-collecting premiums.

Retirement Contributions (401(k), etc.): Contributions should be deducted from all eligible paychecks until the annual IRS contribution limit is reached. Employers must ensure their payroll system has a "hard stop" to prevent employees from exceeding the annual limits. Employees may need to adjust their per-pay-period contribution amount to reach their desired annual savings goal or full employer match.

Flexible Spending Accounts (FSA): Similar to benefit premiums, FSA deductions must be carefully managed to ensure the total annual election amount is collected exactly. Deductions will need to be recalculated across the actual number of pay periods in the year.

Wage Garnishments: These must also be reviewed to ensure correct amounts are withheld according to court orders or agreements, potentially requiring recalculation based on the number of pay periods.

Taxes (Federal, State, Local): Tax withholdings are typically calculated each pay period based on the W-4 form and the bi-weekly tax tables. An additional pay may push some employees into a higher tax bracket or affect Social Security tax calculations for highly compensated employees nearing the annual wage base.

What can employers do to prepare?

To prepare for this anomaly, employers can take steps to ensure minimal disruption, including:

• Verify their 2027 payroll calendar to confirm the exact number of pay periods based on their specific pay dates
• Communicate clearly and early with employees about how their paychecks, deductions, and annual salaries (if adjusting the per-period amount for exempt employees) will be affected
• Coordinate with third-party vendors and payroll providers to ensure all systems are configured correctly for the unusual number of pay periods
• Document all changes for compliance and auditing purposes

A full checklist for employers is available from MRA-The Trusted HR Experts here.

If you have any questions or would like additional information, please contact our accounting services team.