With the long-awaited summer holidays quickly arriving, be prepared to answer the question, “Do holidays affect direct deposit?”

Paydays on holidays can wreak havoc on payroll processing and create uncomfortable situations between you and your employees, especially during the busy summer months. This is because there is no law that mandates employers to pay their workers before a holiday if payday falls on the holiday.    

However, nothing is worse than realizing that your employees will not be paid until after the holiday, when you already assured your team that you would have it done before. Summer is a tough time to keep track of vacation days, holidays and paydays. Here are some tips to make sure your payroll doesn’t put a damper on everyone’s Memorial Day weekend.

Why do federal holidays matter?

Nowadays, a lot of banks are actually open on holidays. However, even if a bank is open, if the Federal Reserve is closed, there is no actual movement of money. This is what prevents the deposits going through. Some employees may still be able to deposit and cash checks at their banks if they are open.

Although direct deposit is electronic, it cannot be processed on holidays due to the Automated Clearing House (ACH) following the same rules as the reserve. The ACH is an electronic network for financial transactions in the United States and is used for business-to-business payments, direct deposit of payroll, consumer bills, and Social Security, e-commerce payments, and tax payments.

Since your employees will not be receiving their direct deposit on holidays, you’ll want to ensure you review your next scheduled check date for accuracy and alter the run date to accommodate the holiday if it needs to be adjusted.

Federal holidays in the summer:

Memorial Day- Monday, May 28, 2018

Independence Day- Wednesday, July 4, 2018

Labor Day- Monday, September 3, 2018

Keep in mind that many employees take additional vacation days surrounding these holidays. So, if the person in charge of payroll plans to take a few days off when payroll is due, make sure that it is submitted early or that you have it covered.

Tips for handling holiday pay.

  • Be Consistent
    • If you decide to pay your employees the day before the holiday, it’s a good idea to continue to do the same all year.
  • Be Transparent
    • Make sure that your employees know if they are getting paid for a federal holiday or not. Communication is key. Don’t know if you should pay them for the holiday? We discuss the pros and cons in this past blog post.
  • Distribute a Schedule
    • Make a schedule at the beginning of the year to ensure that the year goes as planned. Be sure to share it with employees so everyone knows when they will be paid throughout the year.

Practical example.

If you decide to pay your employees before Memorial Day, here is an example of how you could process your payroll.

If your normal paycheck date is on Monday, May 28, you could change your check date to Friday, May 25. Keep in mind that you would then need to process your payroll by Wednesday, May 23. If your payday is the next day or two after the holiday, you may need to consider running early as well to allow for the extra day due to the bank holiday on Monday. Federal holidays that fall on a Monday make it easy to remember. If your payroll falls on a Wednesday, this Fourth of July will impact your payroll schedule. For all other federal holidays for 2018, click here.

PrimePay’s Time Clock solution integrates your time tracking with Online Payroll to ensure accuracy. No more worrying about holidays! We have it covered for you. Click here to learn more or fill out the form below.

Disclaimer: Please note that this is not all inclusive. Our guidance is designed only to give general information on the issues actually covered. It is not intended to be a comprehensive summary of all laws which may be applicable to your situation, treat exhaustively the subjects covered, provide legal advice, or render a legal opinion. Consult your own legal advisor regarding specific application of the information to your own plan.