With the federal holidays always around the corner, 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. This is because there is no law that mandates employers to pay their workers before a holiday if payday falls on the holiday.    

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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. It's always tough 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 holiday spirit.

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 2019:

  • New Year's Day - Tuesday, Jan. 1, 2019
  • Martin Luther King, Jr Day- Monday, Jan. 21, 2019
  • President's Day - Monday, February 18, 2019
  • Memorial Day - Monday, May 27, 2019
  • Independence Day - July 4, 2019
  • Labor Day - Monday, September 2, 2019
  • Columbus Day - October 14, 2019
  • Veterans Day- Monday, Nov. 11, 2019
  • Thanksgiving Day- Thursday, Nov. 28, 2019
  • Christmas Day- Wednesday, Dec. 25, 2019

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 Thanksgiving Day, here is an example of how you could process your payroll.

If you normally process your payroll on Thursdays, please plan on processing it on Wednesday, Nov. 27. For direct deposit: If your check date falls between Thursday, Nov. 28 and Friday, Nov. 29, please consider processing your payroll early. 

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.

This article was originally published on May 11, 2018.