Look before you leap

What does the leap year mean for payroll calculations? Find out which rules apply.

Jaspal Randhawa-Wayte, Director of Product Management, Payroll Solutions, Zellis

Feb 11th 2020

There are several important events that only happen once every four years: the Olympic Games, the Football World Cup, the US presidential election and, of course, the leap year.

The leap year rule was first invented by the Roman emperor Julius Caesar all the way back in 45 BC, and was further refined in 1582 by Pope Gregory XIII. Thereafter, any year divisible by four would be considered a leap year, with an extra day following February 28th.

What does this all mean for payroll?

Well, a far cry from the days when Roman soldiers were famously paid in salt (or in Latin, ‘salarium’, from which was derived the modern word ‘salary’) instead of cash, today’s payroll environment is highly sophisticated and complex. Organisations must be extremely careful in complying with all of the relevant payroll regulations – or else risk falling foul of the law and incurring hefty fines.

So, how will the extra day in 2020 impact payroll calculations?

In short, it all depends on whether the employees are ‘salaried’ (i.e. they are paid a fixed annual salary) or are paid according to the number of hours they work.

Employees who are paid a fixed annual salary won’t be affected by the leap year, since they are paid for the year as a whole – rather than specific hours or days. However, employees who are paid based on the number of hours they work will be affected, including if they work on the extra day this year.

This is a really important rule for organisations to know about – especially if they have many employees who earn the National Minimum Wage (NMW). Failing to take the extra day into consideration when calculating pay can risk inadvertently sending individuals below the NMW on average for the pay period in question.

The impact of minimum wage underpayment

It was reported by the Resolution Foundation in January that a quarter of NMW workers under the age of 25 have been underpaid, with HMRC identifying nearly £25m in underpayment for more than 220,000 workers. If found to be in breach of the law, businesses – regardless of their size or sector – can face fines of 200% of the arrears and potentially criminal prosecution.

This mistake is easily made by organisations without a purpose-built and compliance-focused payroll solution in place. Spreadsheets can’t be relied on to produce accurate payroll calculations which meet the standards dictated by today’s legislation.

At Zellis, we work to put compliance at the heart of our award-winning payroll and HR software, ResourceLink. This includes functionality that helps to prevent against non-compliance with NMW rules. ResourceLink users are alerted whenever an individual is at risk of being underpaid, allowing corrective measures to be taken in advance of finalising the payroll.

Don’t get caught out by NMW complexity – look before you leap! Get in touch with Zellis today to find out more about how we can support your payroll and HR needs.

Want to learn more?

If you’d like to discover more about ResourceLink or how our people can help you transform your payroll and HR operations, we’d love to talk.

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