In 2026, depending on when your pay cycle begins in the year, employers using a biweekly payroll schedule may encounter an unusual situation: a 27th pay period. This occurs because the typical payroll cycle does not perfectly align with the calendar year, and the New Year’s Day holiday in 2027 shifts the final 2026 payday to December 31. While this happens only about once every 11 to 12 years, it can create meaningful payroll, compliance and budgeting challenges for employers.
One of the biggest concerns involves salaried (exempt) employees. Employers who simply divide annual salaries over 27 pay periods instead of 26 may unintentionally reduce employees’ per-paycheck earnings. This could risk falling below minimum salary thresholds required to maintain exempt status under the Fair Labor Standards Act (FLSA), as well as under stricter state laws.
Employers must also carefully evaluate payroll administration and compliance issues, including notice requirements for pay changes, accurate tax withholdings and the risk of overpayment. Running a 27th payroll without adjusting salary structures could increase total payroll costs by approximately 3.85 percent, which may significantly impact budgets — especially for organizations with large numbers of salaried employees.
Additionally, benefits deductions and contributions require close attention. Items such as health insurance, HSAs, FSAs and retirement contributions are typically structured around 26 pay periods. Employers must ensure deductions are handled correctly so employees neither exceed contribution limits nor miss required contributions.
To manage these challenges, employers generally choose between two approaches: either prorating salaries across 27 pay periods (resulting in smaller paychecks) or keeping pay the same and issuing a 27th paycheck (increasing total compensation costs). Regardless of the approach, proactive planning — reviewing payroll calendars, budgeting, coordinating with payroll providers and communicating clearly with employees — is essential to avoid errors and maintain compliance.
Tammy Toman, JD, PHR, SHRM-CP, is the vice president and employment counsel at The MBA. Contact her at 814/833-3200, 800/815-2660 or ttoman@mbausa.org.
