C.L. Coonrod & Company Article

Budget Disaster! Don’t Overlook An Extra Payroll in 2009 or 2010.

Like Halley’s Comet, the calendar is cranking around to another odd year in which an extra payroll may be due.

That will cause a budget disaster for units that are unprepared.

Most units pay employees every two weeks. In most years, that means the budget includes 26 paydays. From year-to-year, the only budget concern is whether to offer a raise and whether to add or eliminate job slots.

However, the 365-day year does not fit perfectly into a 26-payday cycle. In most years, there is one extra day. In leap year there are usually two. Over several years, the extra days add up. As a result, once in a while, 27 paydays will fall into a single year.

In case that does not seem like a big deal, imagine what would happen if the 27^th payday were overlooked in the budget. At Christmas time, every single department would be short a whole payroll.

It takes a lot of money to add a whole payroll. Not all units will have that much cash. Then what?

We urge you to check your 2009 calendar and determine if your unit will have a 27^th payday.

BE CAREFUL. IF YOU PAY EVERY TWO WEEKS, AND YOU HAVE A PAYDAY ON FRIDAY, DECEMBER 18, 2009, YOU MAY THINK THAT IS YOUR LAST PAYDAY OF THE YEAR. THE NEXT PAYDAY WOULD NORMALLY BE FRIDAY, JANUARY 1, 2010. HOWEVER, FRIDAY, JANUARY 1, 2010, WILL BE A HOLIDAY SO THURSDAY, DECEMBER 31, 2009, WILL BE A 27^TH PAYDAY.

Some units will try to push the problem into the future by delaying paychecks until after the New Year’s Day weekend. Hopefully your employees will not object. However, it seems as though employees will want their paychecks before New Year’s Day in order to take advantage of the retail bargains that are usually available that weekend. Any delay in payroll at holiday time is painful. Besides, it does no good to push the problem to a future year. It only pushes the problem to 2010.

Not all units have a payday on December 18, 2009. If your unit pays every two weeks and you have a payday on December 25, 2009, you probably won’t have a 27^th payday for several more years. Obviously, units that pay weekly are on a different cycle. They need to be concerned about having a 53-pay year as opposed to a 52-pay year. Units that pay on the 15^th and last day of the month can probably avoid the problem altogether.

Some units try to address this problem by claiming their “salaries” are “annual” and therefore they simply divide the annual salary by 27 rather than 26. The problem with that approach is that it cuts each employee’s take-home pay. The employee may have a difficult time understanding why, due to an accident of the calendar, he is suddenly taking home less money every two weeks.

On the other hand, for elected officials, you may have no legal choice but to divide the salary by 27, even though it will not seem fair to the elected officials. Special laws apply to the pay of elected officials, so you should treat them accordingly.

The best solution is to plan far ahead. Every year, you should budget enough money to pay for a full 365-day year and an extra day in leap years. Some appropriations will be left over each year, and these should be encumbered. If that encumbrance is carried forward year after year, it will grow into enough money to cover most of the 27^th payday, when it happens.

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If you have questions or would like further information about additional appropriations and transfers, please contact us at: Coonrod@Coonrodcpa.com

Revised 11/06/2009

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This article is intended to provide information of general interest to local government officials in Indiana. The information is not guaranteed to be applicable or appropriate in particular circumstances. Local officials should consult competent professionals before acting on any information contained in this article. We are not attorneys. Advice of a legal nature should be sought only from qualified attorneys.

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