In the U.S., the majority of people–even those making more than $100,000 per year–live paycheck to paycheck. That means getting paid late or off-schedule can result in serious financial difficulties for a large percentage of your workforce.
As a small business owner, it's your responsibility to help your employees avoid those difficulties. And how do you do that? By making sure they're paid consistently and on time.
During a normal pay period, that's pretty easy to do. But what about when a pay date falls on a holiday?
Let's take a look at everything you need to know about what to do when a pay date falls on a holiday, including what holidays will impact payroll, why you can't pay your employees on those holidays, and—most importantly—how to process payroll when a payday falls on a holiday:
Why Can't You Pay Your Employees on a Holiday?
To put it simply, you can't pay employees on a holiday because banks are closed, as are bank-to-bank transfers—including direct deposit.
To go into more detail, banks and credit unions transfer funds through an electronic network called the Automated Clearing House (ACH), which enables bank-to-bank transfers.
Transactions like direct deposits (which a whopping 93% of employees rely on to get paid) and other payments rely on ACH for transferring the funds from your business bank account to your employees' accounts.
The ACH processes transactions Monday through Friday; weekend transactions are processed on the next Monday. On holidays, the ACH closes, as do most banks and credit unions. This means that any transfers initiated on a holiday won't take place until the next business day.
So, those 93% of employees won't have access to their pay until after the holiday—including any weekend days that fall between the holiday and the next business day.
But this is just a temporary solution—and one that can complicate your payroll. Plus, there's a reason so many employees opt for direct deposit—and switching to an alternative payment method might not be the solution your employees are looking for.
Luckily, there's a better solution, both for your business and your employees—and that's processing payroll with the holiday in mind.
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Do You Always Have to Pay Employees on Time?
In short—yes, give or take a few days.
Under the federal Fair Labor Standards Act (FLSA), you're required to pay your employees regularly—which the FLSA defines as consistent with your established pay frequency and method.
In other words, you can't randomly change your pay schedule or method to account for an upcoming holiday, then switch back to your regular frequency and/or method; your payroll schedule—and the method through which you pay your employees—needs to be consistent.
Additionally, some states have additional restrictions on the frequency of pay periods. For example, California requires wages to be paid at least twice per month—while states like Arizona have similar laws, requiring no more than 16 days between each payday. In these states (and others like them), delaying payment until after the holiday could result in you violating the law.
So, the FLSA does specify that you need to pay your employees regularly. But what it doesn't do is actually specify what you're supposed to do if a payday falls on a holiday.
What To Do If Payday Falls on a Holiday
So, if your regular pay date falls on a holiday, what are your options for processing payroll?
- Process payroll normally: Run payroll like you normally would on your regular payday. In this situation, your employees will receive their wages on the next business day.
- Process payroll normally, but pay to expedite the payouts: Run your payroll like you normally would on your regular payday. However, you can pay an additional fee to your payroll provider to process payouts sooner, including on the same day. (For example, if your wages are typically paid out the day after you process payroll—and that day falls on a holiday—you could pay a fee to have your provider pay your employees the day you process payroll, ensuring they get paid before the holiday.)
- Process payroll a day early: Run payroll earlier than you would otherwise. That way, your employees receive their pay before their regular payday.
- Process payroll late: Run your payroll on the next workday after a holiday. Employees will receive their pay the next business day—which could be two days after a holiday (or more if the holiday causes a three-day weekend).
- Offer a payroll advance: Process your payroll normally—but offer payroll advances to your employees if they need or want all or some of their pay before the holiday.
What's the best choice for your business? That depends. Running payroll normally—or processing it late—can help you avoid processing or expediting fees. At the same time, the delay in payment can upset employees or make it tough for them to make ends meet.
On the flip side, processing payroll early ensures your employees receive their earnings before the holiday, which can help them avoid financial hardship—but your business might have to pay a fee to make that happen.
Running payroll early also takes some planning and prep work so you can meet your payroll provider's deadlines to make sure direct deposits are transferred before banks close.
What Bank Holidays Will Impact Payroll?
- New Year's Day
- Martin Luther King, Jr. Day
- President's Day/Washington's Birthday
- Memorial Day
- Juneteenth National Independence Day
- Independence Day
- Labor Day
- Columbus Day
- Veterans Day
- Thanksgiving Day
- Christmas Day
If payday falls on one of the above holidays, your employees won't actually get paid until the next business day.
For example, if Friday is both your regular payday and a holiday, funds won't be transferred to your employees' bank accounts until the following Monday. If a holiday falls on a Sunday, banks close on the following Monday—which means payroll processing will be delayed until the following Tuesday.
Federal bank holidays in 2023 and 2024 take place on:
|New Year’s Day
|Sunday, January 1
|Monday, January 1
|Martin Luther King, Jr. Day
|Monday, January 16
|Monday, January 15
|President’s Day/Washington’s Birthday
|Monday, February 20
|Monday, February 19
|Monday, May 29
|Monday, May 27
|Juneteenth National Independence Day
|Monday, June 19
|Wednesday, June 19
|Tuesday, July 4
|Thursday, July 4
|Monday, September 4
|Monday, September 2
|Monday, October 9
|Monday, October 14
|Saturday, November 11
|Monday, November 11
|Thursday, November 23
|Thursday, November 28
|Monday, December 25
|Wednesday, December 25
Holiday Payroll Best Practices
Still trying to figure out the best way to pay employees when a pay date falls on a holiday—both for your employees and your small business? Follow these best practices to manage holiday payroll while looking after the needs of both your company and your employees.
Create a Payroll Schedule
Before the start of each new year, meet with your human resources or accounting department to look at the year's upcoming holidays, the dates they fall on, and which of those dates correlates to company paydays.
From there, determine when you need to process payroll to make sure you pay employees on time. (Remember that the date you run payroll isn't the same date as when employees get paid, even during a normal pay period—so plan accordingly.)
Once you've chosen how you want to handle when a payday falls on a holiday, stick with it; don't choose different scheduled paydays from holiday to holiday.
For example, if you decide to process holiday pay a day early, stick with that schedule throughout the year; don't alternate between a day early, the day of, or a day late.
Staying consistent ensures everyone knows what to expect if and when a payday falls on a holiday—which makes it easier for you and your team to process payroll and for your employees to manage their finances.
After coming up with your payroll schedule, share it with your staff and employees. Include it in your employee handbook and hang it in common areas (like the breakroom) so employees are aware of holiday pay dates and when they can expect to receive their pay.
Reminders are important in the lead-up to a holiday, both for you and your employees. Schedule reminders to make sure you process payroll early enough to get employees paid on time. Set separate reminders to alert employees to upcoming holidays so they're aware of the shift in pay date.
Work With a Payroll Provider
Managing payroll manually is complex and time-consuming—especially when a pay date falls on a holiday. Working with a payroll provider (like Hourly!) can simplify and automate your payroll processes, helping you to avoid mistakes like inaccurate record-keeping or missing holiday payroll dates.
Still have some questions about what happens when a pay date falls on a holiday? These frequently asked questions have you (and your employees) covered.
What Time Does Direct Deposit Hit After a Holiday?
On business days, the Automatic Clearing House (ACH) electronic network submits transactions at 6 a.m., 12 p.m., 4 p.m., 5:30 p.m., and 10 p.m. Eastern Time. Direct deposits can take anywhere from the next day to one to three business days to post to an employee's account, though this can vary between banks (based on their policies and schedules).
Will My Direct Deposit Go Through on a Holiday?
No. The ACH doesn't process direct deposits on bank holidays. Direct deposits made on a bank holiday will be available on the next business day.
Do Payments Get Delayed on Holidays?
Payments from your employer can be delayed on holidays if your employer doesn't process payroll early.
Speak with your supervisor, manager, or HR rep to learn how your company handles holiday payroll—and what options are available to you if your company doesn't process early holiday payroll.
Can Payroll Be Processed on the Weekends?
No. Bank transfers made on the weekend aren't processed until the next business day.
Avoid Holiday Payroll Mishaps by Planning Ahead
With such a massive percentage of employees relying on on-time payments through direct deposits, processing holiday payroll without a plan in mind can result in headaches for everyone involved—and severely impact the morale and financial well-being of your workforce.
But now that you know how to create a plan around holiday payroll, you have everything you need to ensure your employees get paid in a timely manner—and that you have the processes in place to make that happen.