These questions are being answered by Learn HR, a market leader in the provision of HR and payroll training and nationally-recognised professional qualifications.
Q:Why are there 53 paydays this year and how do we handle the payments?
A: A year has 365 days or, in a leap year, 366 days. That means that there are 52 whole weeks, plus an extra one or two days.
In a tax year that has 365 days, the first day and the last day fall on the same day of the week. If, say, the first payday falls on Friday, 6 April, the last payday will fall on Friday, 5 April, in the following year. There will be, in that tax year,
- 53 weekly paydays,
- 27 fortnightly paydays, and
- 14 four-weekly paydays.
In a tax year that has 366 days, the first two days and the last two days fall on the same days of the week. If, say, the first payday falls on Friday, 6 April or Saturday, 7 April, the last payday will fall on Friday, 4 April or Saturday, 5 April, in the following year. For either of those paydays, there will be, in that tax year,
- 53 weekly paydays,
- 27 fortnightly paydays, and
- 14 four-weekly paydays.
For determining in which tax week a payday falls, an employee’s payday is the earlier of
- the date on which the payment is actually made, and
- the date on which the employee is contractually entitled to be paid.
Example: If the contractual payday is Friday but employees are routinely given their wages on Thursday, the payday is Thursday.
Being specific therefore, there is a 53rd payday for employees paid weekly, a 27th payday for employees paid fortnightly, and a 14th payday for employees paid four-weekly if,
- in the 2005/06 tax year, the first payday is Wednesday, 6 April 2005 and the last payday is Wednesday, 5 April 2006
- in the 2006/07 tax year, the first payday is Thursday, 6 April 2006 and the last payday is Thursday, 5 April 2007.
- in the 2007/08 tax year (which has 366 days), the first payday is Friday, 6 April or Saturday, 7 April 2007 and the last payday is Friday, 4 April or Saturday, 5 April 2008.
The situation where there is an extra payday in the year occurs
- every 5 or 6 years for weekly-paid employees
- every 11 or 12 years for fortnightly-paid employees, and
- every 22 or 23 years for four-weekly-paid employees.
In a tax year with an additional payday, each employee’s free pay, as governed by the employee’s tax code, is applied over the usual number of paydays in the year, i.e. 52, 26 or 13 paydays. For the additional payment, the extra paydays are known, respectively, as Week 53, Week 54 and Week 56.
An extra amount of free pay is provided for the additional Week 53, Week 54 or Week 56 and, to achieve this, the tax for the payday is calculated non-cumulatively, i.e. as if it were week 1, week 2 or week 4, respectively. The effect is that, in that tax year,
- weekly-paid employees receive one extra week of free pay,
- fortnightly-paid employees receive two extra weeks of free pay, and
- four-weekly-paid employees receive four extra weeks of free pay.
In the case of employees with K codes, one, two or four weeks of additional pay are applied.
When completing forms P14 for employees after the end of a tax year with an extra payday, the employer enters “53”, “54” or “56”, as appropriate, in the section headed “Payment in Week 53”. The final tax code shown on the P14 should be the tax code used for the extra payday, e.g. 489LW1. The “W1” will, under standard year-end rules, be removed before processing the first pay of the new tax year.
The payroll department should correctly identify a week 53, week 54 or week 56 in advance of the tax year in which it will occur. Some payroll systems recognise the situation automatically; others require an indicator to be set so that the extra payday is calculated correctly. If the situation is not recognised in advance and employees are paid their first wages for the new tax year on the last day of the previous tax year, the employer’s tax office should be contacted immediately for guidance.
The problem of an extra payday never arises with employees who are paid monthly. There can only ever be 12 monthly payments in a tax year.
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