Employers using bi-weekly payroll face a unique shift in 2026. Because the Jan. 1, 2027, federal holiday falls on a Friday, a common payday, some organizations will have to move their final payday to Dec. 31, 2026.
For the 43% of U.S. organizations that pay employees bi-weekly*, such an anomaly, which occurs about every 11 years, can create a 27-pay-period year instead of the standard 26. An additional pay period has significant implications for compensation, benefits, and compliance. Organizations that have not yet prepared for an extra pay run should begin planning now to manage this situation effectively and prevent potential payroll complications.
How the 27th Pay Period Affects Salaried Employees
A 27-pay-period year can affect how you pay salaried employees. If you divide annual salaries by 27 instead of 26, bi-weekly pay drops, which can push employees below the federal salary threshold and jeopardize their exempt status.
Some states have higher salary thresholds or unique exemption rules, so multistate employers need to review local requirements carefully. As you plan for a 27-pay-period year, ensure your exempt employees remain compliant with the Fair Labor Standards Act (FLSA).
Example: An employee earning $36,000 annually receives $1,384.62 per paycheck across 26 periods, safely above the $684 weekly minimum. Divide the same salary across 27 pay periods, and pay drops to $1,333.33 per paycheck, or $666.67 per week — below the FLSA threshold.
Employers with higher state salary requirements face more risk, so early review is essential for compliance.
Notify Employees and Verify Payroll Withholdings
Before adjusting pay schedules, notify employees, confirm tax withholding, and review benefits. Proper planning prevents compliance and payroll issues.
Notify Employees
Check federal, state, and local rules before adjusting pay. States like California, New York, Alaska, Maryland, and Illinois require advance notice. Rules differ, so consult local legal counsel.
Verify Tax Withholding
The Internal Revenue Service (IRS) provides tables for both 26- and 27-paycheck years. Check that payroll software is set for the extra cycle. Double-check calculations, especially for multistate employees, to prevent under-withholding.
Avoid Overpayment and Review Benefits
Issuing a 27th bi-weekly paycheck increases annual payroll costs by up to 3.85% before factoring in benefits. For example, a salaried employee earning $70,200 receives $2,700 per paycheck over 26 periods. A 27th paycheck raises annual pay to $72,900, an unplanned $2,700 increase per employee. For larger organizations, this can significantly impact the budget.
An extra payroll cycle also affects deductions for health insurance, Health Savings Accounts (HSAs), Flexible Spending Accounts (FSAs), retirement accounts such as 401(k)s, and voluntary benefits. Many employers, complete deductions across the first 26 paychecks, leaving the 27th paycheck free of deductions. Audit contribution schedules in advance to ensure annual limits are met without overage.
Choose the Right Payroll Approach for a 27-Pay-Year
Employers with bi-weekly payroll can manage a 27-pay-period year in two main ways. Each approach has trade-offs for paychecks, benefits, and budgets, such as:
Pro-Rated Paychecks
Divide annual salaries by 27 instead of 26 to issue slightly smaller paychecks throughout the year. This avoids overpayment and simplifies year-end payroll, though employees receive a modestly lower amount each pay period.
Example: An employee with a $70,200 annual salary receives 27 paychecks of $2,600 each, before deductions. Most employers using this approach complete benefits deductions across the first 26 paychecks, leaving the 27th paycheck without deductions.
Standard Paychecks, Plus an Extra Paycheck
Keep the normal bi-weekly pay across 26 cycles and issue a 27th paycheck on December 31. This keeps employee pay consistent from period to period but increases the total annual salary by about 3.85%. This keeps employee pay consistent per period but increases total annual salary by about 3.85%.
Example: An employee earning $70,200 continues to receive $2,700 per paycheck for 26 periods, then receives an additional $2,700 on December 31—totaling $72,900 for the year. Employers should budget for this increase and consider the impact on benefits
With these two approaches in mind, review the key actions needed to manage your organization’s 27-pay-period year effectively.
Take Action to Manage Payroll in a 27-Pay-Year
Careful planning helps your business stay compliant while controlling budgets and keeping employees informed during a 27-pay-period year.
- Review your payroll calendar: Confirm if your organization will issue 26 or 27 paychecks in 2026. To check, see if the first paycheck was issued on Friday, January 2; if so, the final pay date will likely be Thursday, December 31.
- Audit benefits contributions: Verify deductions for health insurance, HSAs, FSAs, retirement accounts, and voluntary benefits. Make sure annual limits are not exceeded.
- Adjust your budget to account for an extra payroll cycle: Consider how a 27th paycheck will impact your overall spending, cash flow, and financial planning.
- Maintain a consistent payroll cycle throughout the year: Once a decision is made regarding the number of payroll cycles, adhere to it for the remainder of the year to ensure consistency.
- Proactively inform employees: Explain how the 27th pay period may affect their paychecks and benefit deductions, so they understand upcoming changes.
- Confirm with your payroll provider: Ensure all system settings, calculations, and compliance features are ready for a 27-pay-period year.
Let CBIZ Simplify Your 27-Pay-Period Year
Contact CBIZ today for guidance on your 27-pay-period payroll year.
Frequently Asked Questions
What Employers Should Know About a 27-Pay-Period Year
Yes. If bonuses or incentives are calculated per pay period, an extra paycheck can shift amounts or timing. Employers should review bonus formulas and communicate any changes clearly to avoid confusion.
Extra paychecks can affect quarterly and year-end payroll tax reporting. Employers should ensure payroll systems correctly calculate taxes for all 27 periods to prevent underpayment, errors, or penalties, especially for multistate employees.
Potentially. If contributions are deducted per paycheck, spreading them across 27 periods may slightly reduce each deduction. Employers should verify that employees still meet annual contribution limits without exceeding them.
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