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.
Now, you can technically avoid this problem by paying your employees with a payroll card, prepaid debit card, certain mobile apps or online banks, or other methods that don't rely on bank transfers.
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?
The Federal Reserve and financial institutions observe 11 bank holidays. These institutions—and the ACH—are closed on:
- 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:
