Banking Holiday Payroll Considerations
Head of Payroll Operations
There are over a thousand holidays in the US. Whether it’s National Pet Day (April 11th) or National Pie Day (January 23), there is something special to celebrate everyday of the year. However, there are 11 standard Federal reserve bank holidays which hold a little more importance than the others. While for most people these holidays are an opportunity to honor special events and people, in the payroll space they represent some challenges since payroll cannot be processed on these days.
So how should payroll providers prepare for these holidays? In short, it depends on the type of holiday.
There are two types to be aware of: static and moving. Static holidays are always set time in a given month, such as Thanksgiving, which is always the last Thursday in November. Moving holidays are always the same date in the month (Independence Day is July 4th and can be observed during the week or weekend).
The 11 holidays are:
- New Year’s Day (moving)
- Martin Luther King Jr. Day (static)
- Presidents Day (static)
- Memorial Day (static)
- Juneteenth (moving)
- Independence Day (moving)
- Labor Day (static)
- Columbus Day (moving)
- Veterans Day (moving)
- Thanksgiving Day (static)
- Christmas Day (moving)
Let’s look at how these different types of holidays impact payroll processing:
Static Holidays - These holidays are always observed during the week. Therefore, a payroll provider can plan for these dates to not be used for payroll processes and should notify customers accordingly. For example, a provider would want to notify their customers in advance that Monday, May 30th, is Memorial Day, so payroll should be processed the Friday prior. In some cases, a provider might offer alternate approval windows, in which case processing payroll on the following Tuesday would also work. Either way, it’s important that customers are aware of the inability to approve or schedule payroll on the Monday holiday.
Moving Holiday - These dates similarly impact payroll processing, but they are even more likely to fall on an active payday since the date changes every year. For example, if Christmas falls on a Friday, all customers with a standard Friday payday need to schedule their payroll for Thursday instead. Depending on the pay schedule, this may mean making an assumption on the amount of hours worked depending on the pay period end date. Or, if a holiday falls on a Saturday, it’s important to note that the Federal Reserve will still be open the preceding Friday, so payroll can run as planned. However, if the holiday falls on Sunday, the Federal Reserve will be closed the following Monday, and payroll will need to be shifted.
Payroll providers should plan for these dates and communicate upcoming holidays proactively to ensure customers are aware of when money can be moved and how processing is impacted.
In most cases, payroll systems are intelligently designed to only allow payments to be scheduled on banking days, and will prevent someone from approving payroll on a holiday when money is unable to move. While having a system that prevents payroll processing on a holiday is a benefit, providers still need to actively and consistently communicate to their customer base when a holiday is approaching so they can plan accordingly.
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