Is your business ready for an extra pay-period year?
Understanding the impacts of an extra pay period
Most employers who pay employees weekly or bi-weekly are used to processing 26 paychecks each year (biweekly) or 52 (weekly). However, some employers will experience a rare occurrence in 2026: an extra pay period in 2026.
This happens because a bi-weekly payroll schedule covers only 364 days each year. Over time, those extra days add up, creating an additional pay period approximately every 11 years. If your first payday of 2026 falls on January 2, your final payday may land on December 31, resulting in a 27th paycheck.
While an extra payroll may seem like a minor calendar quirk, it can have significant impacts on payroll costs, employee pay, benefits, and compliance.
Why does it matter?
An extra payroll can affect:
- Salaried employee pay calculations
- Exempt employee salary requirements
- Payroll taxes
- Benefit deductions
- Retirement plan contributions
- Annual payroll budgets
Considerations
- Impact on Salaried Employees
For salaried (exempt) employees, employers typically divide annual salaries by the number of pay periods.
Biweekly example: With 26 pay periods, a $52,000 salary equals $2,000 per paycheck. If that same salary is divided by 27 pay periods, each paycheck drops to approximately $1,925.
While that may seem small, it could create compliance issues. Under federal law, most exempt employees must earn at least $684 per week to maintain exempt status. Some states require even higher minimum salary thresholds.
Before making any payroll adjustments, review exempt employee salaries to ensure they continue to meet federal and state requirements.
- Budgeting for an Extra Payroll
If you choose to keep employee paychecks the same and issue a full extra paycheck, your payroll expenses will increase by approximately 3.85% for affected employees.
That increase doesn’t just impact wages—it also affects:
- Social Security taxes
- Medicare taxes
- State unemployment taxes
- Employer retirement contributions
- Other payroll-related expenses
Employers should account for these additional costs when preparing budgets and cash flow projections.
- Reviewing Benefits and Payroll Deductions
An extra payroll cycle can also impact employee deductions and annual contribution limits. Review the limits for this year to make sure additional deductions do not cause employees to exceed annual limits. Areas to review include:
- 401(k) Contributions
- Health Savings Accounts (HSAs)
- Flexible Spending Accounts (FSAs)
- Other Benefits – Health insurance premiums, commuter benefits, and other payroll deductions may also need adjustment to accommodate the additional payroll.
Two Common Ways to Handle an Extra Pay-Period Year
Whichever method you choose, consistency is important. If you haven’t already begun using Option 1, avoid changing approaches mid-year as this can create confusion and compliance concerns.
Option 1: Divide salaries by 27 (biweekly) or 53 (weekly)
Under this approach, annual salaries remain unchanged, but each paycheck is slightly smaller.
Pros:
- Keeps payroll costs within budget
- No increase to annual compensation expense
Cons:
- Employees receive slightly smaller paychecks
- Advance communication may be required under state law
Option 2: Issue a full extra paycheck
Employers maintain normal paycheck amounts throughout the year and issue an additional full paycheck at year-end.
Pros:
- Employees receive consistent paychecks
- Easier for employees to understand
Cons:
- Payroll expenses increase by approximately 3.85%
- Higher employer tax and benefit costs
Action Steps:
To prepare for an extra pay -period year:
- Review Your Payroll Calendar to determine whether your payroll schedule will result in an extra pay date during 2026.
- Choose whether to divide salaries across 27(biweekly) or 53 (weekly) pay periods, or budget for and issue an additional paycheck
- Communicate early if employee paychecks or deductions will change.
- Audit benefits and deductions to ensure annual limits are not exceeded.
- Update budgets to account for any increased payroll expenses, employer taxes, and benefit costs.
- Confirm your payroll settings to make sure your system is configured correctly for the number of pay periods and current tax withholding tables.