Do you remember that thing that you said you’d get to later? That one presentation or project that, for one reason or another, you just didn’t want to think about in the moment and decided to push to the side to focus on other things? Well, turns out that thing now has an imminently approaching deadline, and you’re not remotely ready enough to meet it. As troublesome a situation as this is, it’s likely we’ve all been there at some point or another. In the case of processing payroll, there are a number of things that can sneak up on you and create issues in your payroll process. Things like holidays can be tricky to navigate and, without proper planning, can lead to missed deadlines and unnecessary stress.
At Payday HCM, we’re very familiar with the stress of running payroll around a holiday. We’re constantly receiving questions from clients about the best strategies for processing payroll around a holiday. This is a situation that, on paper, can feel overwhelming and complex, especially when your business doesn’t have the proper resources on hand to prepare for this kind of situation. At Payday, we want to ensure that, client or not, every business has the tools they need to ensure timely payroll processing, regardless of the time of year.
That’s why, in this article, we’ll be going over how holidays affect payroll processing and what your business needs to know about it. We’ll first start out by providing a broad overview of bank holidays and how they impact things like direct deposit and electronic transactions. Then, we’ll dive deeper into the specifics on how bank holidays affect payroll processing and what businesses can expect when it comes to processing payroll around a holiday. Finally, we’ll go over some strategies that your business can employ to ensure your payroll is processed on time, every time.
In this article, you will learn:
- What Are Bank Holidays?
- How Do Bank Holidays Affect Payroll?
- Tips for Running Payroll Around Holidays
What Are Bank Holidays?
Before we get into the specifics of running payroll around holidays, we’ll first cover what bank holidays are and how they affect things like direct deposit and payroll.
Bank Holidays Defined
Bank holidays are dates when banks, credit unions, and financial institutions close in observance of federal or state holidays, including Thanksgiving, Christmas, Martin Luther King Jr. Day, and others. The Federal Reserve sets these holidays in advance according to the list of federal holidays and which days the holidays fall on in a given year.
The importance of the FED outlining which holidays are bank holidays is that the closures on those days extend beyond just physical branches of banks closing. All transaction processing is suspended on these days. This means things like payroll and direct deposit may be interrupted if they fall on one of these holidays.
Bank Holidays and the ACH Network
When it comes to understanding the importance of processing payroll and holidays, we need to look at what’s called the Automated Clearing House network. Direct deposits and direct payments all operate through the ACH network. Essentially, the ACH network is what allows banks and credit unions to send and receive funds.
Any payments made through the ACH network (any direct deposits) are settled whenever the Federal Reserve’s settlement service is open. As noted earlier, the FED is closed on federal holidays—this means that the FED’s settlement service also stops on these holidays. As a result, ACH network transactions can’t be processed or settled on these holidays.
How Do Bank Holidays Affect Payroll?
Now that we understand what bank holidays are and how they affect electronic transactions, we can dive deeper into how these holidays actually affect payroll processing.
Delayed or Shifted Paydays
One of the most common effects of bank holidays on payroll is delayed or shifted paydays (something we’ve all likely experienced). When a payday falls on a bank holiday, direct deposits typically don’t process until banks and the ACH network reopen—usually the next business day. As a result, many employers move the affected payday back one business day, so employees still receive their pay on time.
For example, if your business’s normal payday is Friday but that Friday is a bank holiday, you’ll want to shift payday to Thursday. Without the adjustment, employees won’t receive their pay until Monday, a scenario that can create far more confusion and put employees in financially vulnerable positions.
Impacts on Processing, Timing, and Payroll Workflows
Bank holidays can also affect the internal timing and workflow of payroll processing. Because the ACH network only processes transactions on business days, submitting or processing payroll too close to a holiday can cause delays even if payday isn’t on the holiday itself. Your own business’s observance of certain federal holidays may also have an impact on when payroll is processed in and around a holiday.
For organizations using payroll software or third-party payroll providers, it’s common to require submission several days before payday to allow for this delay in processing. This is especially true when it comes to businesses operating on a semi-monthly schedule, where it’s much more crucial to plan ahead of time when payroll will be processed in accordance with a bank holiday.
Tips for Running Payroll Around Holidays
Now that we understand what bank holidays are and the impact that they have on processing payroll, we’ll go over some tips and best practices when it comes to processing payroll around a holiday.
Plan Ahead With a Holiday-Aware Payroll Calendar
One of the most effective ways to avoid payroll disruptions caused by holidays is to build a payroll calendar at the start of the year that includes all federal and relevant state bank holidays. Once you map out holidays, align your pay periods, approval deadlines, and payroll-run dates accordingly. That way, you’ll know well ahead of time when paydays might need to shift.
Understanding the ACH network as well as your respective bank’s holiday deadlines can be crucial to ensuring timely payroll processing around a holiday. Nacha, the organization that governs the ACH, outlines some standard industry practices, which include:
- Paydays on a weekend or holiday are shifted to the prior Friday
- Bills or payments due are collected on the following business day
- Direct deposit payments are made available by 9 am on the pay date
Communication and Adaptation
Clear communication with your employees is critical when holidays affect payroll timing. Letting members of your organization know in advance if payday will be adjusted can help them plan for bill payments and avoid confusion or frustration. A transparent approach builds trust and shows that you prioritize their financial well-being.
If a holiday is coming up, consider submitting payroll early so direct deposits clear before the closure. Many employers choose to run payroll a business day ahead of a holiday to ensure employees get paid on schedule. When working with a third-party payroll provider, be sure to communicate what your plan is for holiday payroll and ensure you’re meeting any necessary deadlines.
Don’t Leave Payroll Processing Home Alone This Holiday
The importance of payroll and, by extension, employees getting paid probably can’t be understated. Yes, if your business is creating a positive company culture and your employees’ goals align with the company goals, then it’s likely that they’re not just in it for the paycheck. Even still, those who do the work deserve to be compensated for it—and deserve to be compensated on time. Things like bank holidays can throw wrenches into an otherwise well-oiled payroll machine, especially if you’re not performing the proper preventative maintenance, like establishing a payroll calendar or communicating with employees, to ensure smooth processing around a holiday. Luckily, with the information provided in this article, you can make processing payroll one less thing to stress about this holiday season.
The holiday season introduces several different challenges that payroll specialists and HR managers must navigate. Having the resources and knowledge to navigate these challenges is essential to ensuring your business maximizes its time and stays compliant. Even still, there may be several ways your business can approach payroll that can help you save time and money, regardless of whether it’s the holiday season. Check out our article on five ways to simplify your payroll process to learn more about how you can keep your payroll running efficiently and quickly.
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