A whopping 64% of the U.S. population lives paycheck to paycheck. These employees (and likely all employees) count on receiving their wages on their scheduled pay date. But, bank holidays might pose a slight hiccup. What happens if payday falls on a bank holiday?
What happens if payday falls on a bank holiday—or around it?
Although there are several ways to pay employees, most involve banks in some shape or form. As a result, a bank holiday can wrinkle your payroll processing timeline and desired pay date. If a payday falls on a bank holiday, your employees have to wait until the next business day to access their wages—unless you take action and run payroll one business day earlier.
Say you typically pay employees on Friday. If there’s a bank holiday on a payday Friday, employees may be unable to access their funds until Monday, depending on their payment method.
Bank holidays can also impact your payroll if they’re around the same time as when you run payroll or pay employees. You might need to make adjustments if there’s a bank holiday at any point between your normal payroll processing day and payday.
Let’s say you run a payroll on Monday for a Friday payroll, but there’s a holiday on Wednesday. The Wednesday holiday could pose a problem for your employees getting paid on Friday because of processing times.
Payday falling on a bank holiday mostly influences direct deposit recipients. But, there are a few issues when you pay employees with checks.
Paying with direct deposit
Paying employees via direct deposit has several perks.
Direct deposit transfers money from your business payroll account and deposits it into the employee’s account. The Automated Clearing House (ACH) is the electronic network that handles direct deposit.
So if you pay employees with direct deposit, you might wonder, Will direct deposit go through on a holiday? In short, the answer is no. The ACH only processes direct deposit transfers Monday – Friday. This excludes weekends and holidays.
Employees’ direct deposits are delayed a day when payday falls on a bank holiday. Again, when there’s a bank holiday any time between when you run payroll and the pay date, there’s a direct deposit processing delay.
Paying with paychecks
In the past, bank closures meant workers couldn’t cash their paychecks. But now, many ATMs let bankers cash or deposit their checks. Not to mention, banking apps have mobile deposit options for paychecks.
Even so, employees who receive paychecks might face hurdles if payday falls on a bank holiday. First, some employees prefer cashing their checks in person rather than through their phone or an ATM.
Second, many businesses model their holiday schedule after the Federal Reserve System holiday schedule. As a result, your business might be closed on a bank holiday, preventing you from being able to hand the paycheck to your employee on payday.
When are bank holidays?
Financial institutions and the ACH follow the Federal Reserve System’s holiday schedule. Banks celebrate the following federal legal holidays:
- New Year’s Day
- Martin Luther King, Jr. Day
- Presidents’ Day
- Memorial Day
- Juneteenth National Independence Day
- Independence Day
- Labor Day
- Columbus Day
- Veterans Day
- Thanksgiving Day
- Christmas Day
Some holidays take place on the same numerical day while others occur on the same day of the week (e.g., Monday). Here are the days the Federal Reserve System is closed in 2022 and 2023:
|New Year’s Day||January 1 (Saturday)||January 1 (Sunday)|
|Martin Luther King, Jr. Day||January 17 (Monday)||January 16 (Monday)|
|Presidents’ Day||February 21 (Monday)||February 20 (Monday)|
|Memorial Day||May 30 (Monday)||May 29 (Monday)|
|Juneteenth National Independence Day||June 19 (Sunday)||June 19 (Monday)|
|Independence Day||July 4 (Monday)||July 4 (Tuesday)|
|Labor Day||September 5 (Monday)||September 4 (Monday)|
|Columbus Day||October 10 (Monday)||October 9 (Monday)|
|Veterans Day||November 11 (Friday)||November 11 (Saturday)|
|Thanksgiving Day||November 24 (Thursday)||November 23 (Thursday)|
|Christmas Day||December 25 (Sunday)||December 25 (Monday)|
If a holiday falls on a Sunday, all Federal Reserve offices are closed on the following Monday. If a holiday falls on a Saturday, only the Board of Governors will observe it the day before (Friday).
Handling payroll when payday falls on or around a bank holiday
So, there’s a payday coming up that falls on a bank holiday. What do you do?
There are three commonly discussed options employers have for handling payroll when payday falls on or near a holiday:
- Run payroll like normal: You run payroll like you normally would, and employees get paid after the holiday
- Run payroll earlier: You run payroll a day earlier, and employees get paid before the holiday
- Expedite the process: You run payroll like you normally would, and employees get paid before the holiday because you covered expedite fees
No law says you have to pay employees the day before a bank holiday. However, some laws could regulate when you pay employees.
Federal and state labor laws require consistent paydays. And, many states have pay frequency laws, which regulate how often employees must be paid (e.g., at least twice per month). If a payday falling on a bank holiday jeopardizes your business’s ability to meet your state’s pay frequency laws, you must pay employees beforehand. Not to mention, the U.S. General Services Administration’s payroll calendars show employees receiving their wages the day before a holiday.
Here’s a rundown of what each option means for your business:
|Run Payroll Like Normal||Run Payroll Earlier||Expedite the Process|
|Employees receive their pay before the holiday||X||X|
|You could violate state pay frequency laws||X|
|You must run payroll the day before||X|
|You must pay expedite fees||X|
|You could have disgruntled employees||X|
OK, so what can I do to pay employees on time?
If you want to pay employees on time, you have two options. You can run payroll a day earlier, or you can expedite the process. Take a look at both processes, as well as when direct deposit goes through in each case.
Running payroll earlier
If you want to pay employees before the holiday, run payroll one business day earlier than you normally would. 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.
To help you remember, create a direct deposit holiday calendar. And, distribute a payday schedule to employees so they know when to expect payday.
Stay organized and set alerts. That way, you know when to collect timesheets and run payroll earlier than normal. To further help you stay on track, some payroll software services send you an alert during a bank holiday (e.g., email).
Expediting the process
If you forget about a payday falling on a bank holiday, expediting the process could be your best bet if you want employees to receive their wages on time.
You might be able to speed up the time it takes to process your payroll submission. But, this typically adds 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.
Talk to your payroll provider about your options to expedite the payroll process due to a bank holiday.
This article has been updated from its original publication date of August 21, 2017.This is not intended as legal advice; for more information, please click here.