What to Do If a Payday Falls on a Bank Holiday
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What Happens If Payday Falls on a Bank Holiday?

What Happens If Payday Falls on a Bank Holiday?

Your employees probably love payday. Who doesn’t? As a small business owner, it’s important to run a timely payroll so employees receive wages the same day each pay period. Sometimes, things get in the way, like bank holidays. What happens if payday falls on a bank holiday?

The relationship between banks and payroll

Unless you pay employees with cash, employees usually need banks to receive their wages. Banks can transfer direct deposit transactions and cash checks for employees.

Direct deposit is a popular payment option. In fact, 82% of workers are paid via direct deposit. Direct deposit transfers money from your business payroll account and deposits it into the employee’s account.

What happens if payday falls on a bank holiday

The Automated Clearing House (ACH) is an electronic network that handles direct deposit. The ACH processes direct deposit transfers Monday-Friday.

Some employees prefer to receive their wages in the form of a check. Employees need to go to a financial institution to cash the check or deposit it into their checking or savings account.

What happens if payday falls on a bank holiday?

Will direct deposit go through on a holiday? When financial institutions are closed on your business’s payday, an employee cannot receive their direct deposit or cash a check.

The ACH does not operate when there is a bank holiday. So if you pay employees via direct deposit, the funds will not be transferred into their accounts on a bank holiday.

Payday falling on a bank holiday mostly influences direct deposit recipients. But, there are a few issues when you pay employees with checks. First, your business might be closed on a bank holiday. If that’s the case, your employee won’t receive their check on payday. Second, the employee can’t go to the bank to cash the check.

Federal Reserve System holidays

Financial institutions and the ACH follow the Federal Reserve System’s holiday schedule. Here are the days the Federal Reserve System will be closed in 2020:

Holidays 2020 Dates
New Year’s Day January 1 (Wednesday)
Martin Luther King, Jr. Day January 20 (Monday)
Presidents’ Day February 17 (Monday)
Memorial Day May 25 (Monday)
Independence Day July 4 (Saturday)
Labor Day September 7 (Monday)
Columbus Day October 12 (Monday)
Veterans Day November 11 (Wednesday)
Thanksgiving Day November 26 (Thursday)
Christmas Day December 25 (Friday)

If a holiday falls on a Sunday, the banks are closed on the following Monday. If a holiday falls on a Saturday, the banks remain open the previous Friday.

How does direct deposit work on holidays?

Since your employees won’t receive a direct deposit on holidays, you have three options for handling payroll:

  • Run payroll like normal
  • Run payroll earlier
  • Expedite the process

Simple enough, right? Take a look at when direct deposit goes through in each case.

What happens if payday falls on a bank holiday

Run payroll like normal

If you want to pay employees after the holiday, you will not need to do anything differently. The ACH will process direct deposit the next business day after the holiday.

Of course, you don’t want disgruntled employees because of the direct deposit holiday delay. Employees might not like getting paid later than they should, especially if they want to spend money that day. Many businesses choose to speed up their payroll processing so employees can receive direct deposit before a holiday.

Run payroll earlier

If you want to pay employees before the holiday, you will need to run payroll one business day earlier. That way, employees can receive their direct deposit the business day before the holiday.

Let’s say payday falls on Thursday each week. You must submit payroll four business days before your employees receive their direct deposit.

You collect timesheets on the Thursday before payday. On Friday, you submit your payroll. Then, the employee receives their direct deposit on Thursday.

For Thanksgiving, you need to change your payroll process. Instead of collecting timesheets the Thursday before, you would collect them on Wednesday. Then, you would submit payroll on the Thursday before payday. Employees would then receive their wages the day before Thanksgiving.

Expedite the process

You might be able to speed up the time it takes to process your payroll submission. But, this will typically add fees to each direct deposit transaction you want expedited.

For example, your direct deposit service takes four days to process. You choose to expedite the process since there’s a holiday coming up. Now, it only takes two days between the time you submit payroll and the time employees receive their wages.

Tips for handling payday if it falls on a bank holiday

Payday falling on a bank holiday can be a hassle for you and your employees. Employees might be confused as to when they should expect their paychecks.

Here are a couple of ways to ease employee confusion and your stress:

  • Be consistent. If you pay employees before one holiday, make sure to do the same thing throughout the year.
  • Make a schedule. At the beginning of the year, create a payday schedule and distribute it to employees. Make sure to highlight when a bank holiday changes payday.
  • Talk to your employees. Remind your employees about the change in pay dates the week before. Don’t leave them guessing.
  • Stay organized. If you run payroll earlier, you will need to collect timesheets ahead of time. You will need to submit payroll or print checks earlier as well.
  • Use the right payroll software. Some payroll software services let you know when there is a bank holiday.

Patriot’s online payroll software alerts you of a bank holiday when you select payday in the system. That way, you can avoid confusion and pay your employees the day before or after the holiday. Try it for free today!

This is not intended as legal advice; for more information, please click here.