Leap Year’s Impact on Compliance Requirements in 2024
January 29, 2024
Leap Year’s Impact on Compliance Requirements in 2024

In 2024, leap day will occur on Thursday, Feb. 29. A leap year can create administrative and compliance challenges for organizations every four years. For example, a leap year can impact payroll processing or tax reporting obligations by adding an extra payday to the year. This can increase the number of pay periods from 26 to 27 for employees paid biweekly or from 52 to 53 for employees paid weekly, potentially altering how employees are paid. As a result, it’s essential that employers understand their compliance obligations and assess how an extra day in 2024 may impact any compliance requirements and deadlines.


This article explores how the 2024 leap year can impact compliance deadlines and how employers can proactively prepare and navigate any potential changes. However, the compliance considerations presented in this article are only examples. Employers should consult with their legal counsel to address any specific issues.


Payroll Considerations

Adding an extra day in February 2024 can create an additional pay period for employees who are paid on a weekly or biweekly basis. In 2024, there will be 53 Mondays and 53 Tuesdays. Therefore, weekly or biweekly salaried employees paid on either of these days will have an extra pay period. However, salaried employees paid monthly or semimonthly and employees paid hourly will not be impacted.


When faced with an extra pay period, most employers decide not to change how they pay employees each pay period despite the additional cost. As a result, impacted employees receive an additional pay period for the year, resulting in slightly higher salaries. Other organizations may opt to change their pay frequency or date to account for a leap year.


Some employers may decide to keep employees’ total annual salary the same but spread it out over the entire year. Employers can do this by counting the number of pay periods that will occur during the year and adjusting employee paychecks to account for an extra pay period. However, because of the extra pay period, employees would receive slightly less each paycheck, even though their total annual salary will remain the same. This can create confusion or negatively impact employees unless employers explain ahead of time why workers will receive slightly less each pay period, allowing employees time to prepare. Additionally, employers can explain that an extra pay period may impact employee deductions for benefits and contributions to retirement or health savings plans.


IRS tax withholding requirements do not change when there’s an additional pay period during the year. Therefore, employers must adjust their withholding calculations to ensure they withhold sufficient federal, state and local income taxes. To help avoid errors and ensure accurate payroll calculations, employers can review their payroll systems to ensure they can address leap-year payroll correctly. This can include accounting for an additional pay period, if applicable; withholding taxes correctly; and reviewing pay dates so employees are paid on time. Organizations can also prepare for an additional pay period by ensuring proper budgeting and cash flow to avoid any issues.


Benefits Considerations

Health plan deductions are typically determined by the number of pay periods. As a result, a leap year may force employers to recalculate health plan deductions. Additionally, a leap year can impact employee contributions to 401(k)s, health savings accounts and flexible savings accounts, requiring employees to adjust how much is deducted from each paycheck to ensure they contribute the maximum amount by the end of the year. Therefore, it’s important employers communicate how a leap year may impact employee contributions and allow employees sufficient time to adjust.


The IRS recently finalized reporting regulations under the Affordable Care Act that established a permanent 30-day automatic extension from Jan. 31 for employers to furnish Form 1095-C to employees. According to IRS guidance, applicable large employers must furnish Forms 1095-C to their employees no later than March 2. However, because of the 2024 leap year, the deadline this year is March 1, 2024.


Moreover, the Medicare Modernization Act requires organizations whose health care policies include Medicare prescription drug coverage to notify Medicare-eligible policyholders whether their prescription drug coverage is creditable. These entities must report the credible coverage status of their prescription drug plan to the Centers for Medicare (CMS) no later than 60 days from the beginning of a plan year. If a plan year starts at the beginning of the year, employers typically have until March 1 to report to the CMS. In 2024, however, the reporting must be done by Feb. 29.


Employer Compliance Considerations

The 2024 leap year may also impact certain employer compliance requirements. Employers should review their compliance obligations to ensure they avoid any potential violations.


While many laws are silent on the impact of a leap year, employer obligations are not altered. For example, the Fair Labor Standards Act (FLSA), which establishes minimum wage, overtime pay, recordkeeping and youth employment standards, does not specifically address leap-year considerations. However, since a leap year can create 27 or 53 pay periods (rather than 26 and 52), an employee’s weekly salary may drop below the federal or state-exempt salary threshold in certain circumstances. If this occurs, that employee would lose their FLSA exempt status, which could result in wage and hour violations if not properly addressed. Calculating any pay period adjustments at the start of the year can help employers prepare and avoid potential FLSA overtime and meal and rest break violations that may occur if employees lose their FLSA exempt status due to the additional pay period.


Additionally, employers can review offer letters and other compensation-related documents, including collective bargaining agreements, to determine how best to account for any extra pay periods. In some instances, these documents may state how frequently employees must be paid (e.g., weekly, biweekly). Reviewing these documents can help organizations comply with their legal obligations when determining how to adjust employee compensation during a leap year.


Summary

The additional day in 2024 may present various administrative and compliance challenges for some organizations. Understanding how a leap year impacts compliance requirements can enable employers to prepare and help them avoid costly mistakes. By taking a proactive approach and reassessing timelines, employers can help ensure they meet any compliance requirements and mitigate any potential legal risks.



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Top 5 HR Trends That Will Shape Businesses in 2025

January 7, 2025
As 2025 kicks off, the HR landscape is evolving faster than ever before. Technology, shifting workforce expectations, and the need for businesses to be agile in a dynamic global environment are all driving change. What worked yesterday may not be enough today, and companies must adapt to stay ahead. Here are the top five HR trends you’ll need to watch closely in 2025: 1. AI is Changing the Hiring Game Artificial intelligence is no longer just a buzzword in HR—it’s a game-changer. Tools that can scan resumes, match candidates to roles, and even conduct initial assessments are becoming staples for businesses aiming to save time and improve hiring outcomes. In 2024, many organizations began integrating AI to remove unconscious bias and make their hiring practices more inclusive, and this trend is expected to accelerate. 2. Flexibility Isn’t Just a Perk Anymore Hybrid and remote work models are here to stay, but the conversation has shifted. In 2025, it’s less about offering flexibility and more about making it work effectively. Companies are adopting sophisticated tools for remote collaboration, redefining performance metrics, and ensuring policies address the nuances of managing both in-office and remote teams. The focus is on maintaining productivity without compromising employee well-being. 3. Wellness Goes Beyond Gym Memberships In recent years, wellness programs have evolved beyond basic offerings like gym memberships to address a wider range of employee needs. As companies recognize the link between employee well-being and productivity, they’re broadening their focus to include mental health, financial stability, and holistic support. In 2023 and 2024, for example, Delta expanded its employee wellness initiatives by improving access to mental health care. The airline worked with Spring Health, a new EAP provider, to create a larger and more diverse network of mental health professionals, offering better support for both employees and their household members. Looking ahead to 2025, wellness will become more deeply integrated into company cultures. Expect companies to go beyond providing reactive support to fostering proactive wellness through personalized tools, such as mental health apps, financial coaching, and enhanced benefits like paid leave for caregiving. With these programs, businesses are not just addressing immediate health concerns but also empowering employees to manage their overall well-being in a more holistic way. The focus will be on creating a supportive, sustainable work environment that helps employees thrive both at work and in their personal lives. 4. Upskilling is a Competitive Necessity Technology is evolving faster than ever, and companies are racing to keep up. Upskilling employees in areas like data analysis, AI, and emerging tech became a priority in 2024, and it’s clear that this trend will only grow. Businesses that invest in continuous learning programs—whether through certifications, on-the-job training, or digital learning platforms—are better positioned to stay ahead in their industries. 5. Data is Driving HR Decisions HR is leaning heavily on people analytics to guide decision-making. Instead of relying on intuition, businesses are using data to understand employee engagement, pinpoint reasons for turnover, and improve productivity. The emphasis on metrics like employee sentiment and workforce utilization gained traction last year, and more organizations are embedding analytics into their HR strategies to tackle challenges proactively. Final Thoughts The HR landscape in 2025 will be shaped by these transformative trends. Businesses that embrace innovation and prioritize their people will find themselves not just adapting but thriving in the evolving workplace. As these trends unfold, staying proactive and flexible will be the key to turning challenges into opportunities.

IRS Announces 2025 PCORI Fee Update

January 6, 2025
The IRS has released the 2025 Patient-Centered Outcomes Research Institute (PCORI) fee , which will increase to $3.47 per covered life —a $0.25 increase from 2024. This fee applies to plan years ending on or after October 1, 2024 , and before October 1, 2025 . What is the PCORI Fee? The PCORI fee was introduced as part of the Affordable Care Act (ACA) to help fund the research conducted by the Patient-Centered Outcomes Research Institute (PCORI). This research focuses on improving healthcare outcomes by comparing different medical treatments. The fee is levied on insurers, as well as self-insured and level-funded health plans. The fee is calculated based on the average number of covered lives under a plan and is due once a year, with the filing occurring during the second quarter on Form 720 , the Quarterly Federal Excise Tax Return . The payment is due by July 31 each year. Key Details for Employers and Plan Sponsors Who is Affected? : The fee applies to health insurers, self-insured health plans, and level-funded health plans. When is it Due? : The fee must be reported on Form 720 and paid by July 31 each year. How is it Calculated? : The fee is based on the average number of covered lives during the plan year. The updated $3.47 per covered life fee will be in effect for health plans with policy years ending between October 1, 2024, and October 1, 2025. Employers should be prepared to account for this increase when filing for 2025. For more information on the PCORI fee and its reporting requirements, consult the IRS Bulletin 2024-49 , published on December 2, 2024, or visit the IRS PCORI Fee page . 

Federal DOL Restores Simplified Tip Credit Rule: Employer Guidance

January 6, 2025
In a move welcomed by many employers in the hospitality and service industries, the U.S. Department of Labor (DOL) has officially reinstated the pre-2021 tip credit rule. This change, effective December 17, 2024, follows a recent court of appeals decision that vacated the “80/20/30” tip credit rule that had been implemented under the Trump administration. If you’re wondering what this means for your business, don’t worry—this update doesn’t require any immediate action on your part. What Was the "80/20/30" Rule? Before we dive into the implications of the DOL’s latest rule change, let’s quickly review the "80/20/30" rule. This rule, introduced in 2021, placed specific restrictions on how much time tipped employees (such as waitstaff and bartenders) could spend on non-tip-generating duties (e.g., cleaning, setting up, and other side work). The rule essentially required that tipped workers spend at least 80% of their work hours on tip-generating activities to continue qualifying for the tip credit. Moreover, under the "80/20/30" rule, employers could no longer use the tip credit to offset wages for certain non-tip-producing activities, and they had to ensure that employees spent no more than 30 minutes at a time on side duties. This increased the burden on employers, as it required more careful tracking of employee duties and work hours to remain in compliance. Why Was the Rule Vacated? The court of appeals decision in August 2024 ruled that the "80/20/30" rule was too restrictive and inconsistent with the intent of the Fair Labor Standards Act (FLSA), which allows employers to take a tip credit for workers who perform both tipped and non-tipped duties. The court found that the new rule created unreasonable administrative burdens and restrictions that were not in line with past practices or legal precedents. In response to this ruling, the DOL moved quickly to restore the pre-2021 tip credit rule. What Does the Reinstatement of the Pre-2021 Rule Mean for Employers? With the reinstatement of the pre-2021 tip credit rule, the DOL has effectively simplified the way employers can apply the tip credit to their workers. Under the prior rule, employees who perform a combination of tipped and non-tipped duties can still qualify for the tip credit, as long as their primary job responsibility is related to tipped work. Employers no longer have to track the precise breakdown of time spent on tip-generating vs. non-tip-generating activities in the same way. This returns to the more flexible guidelines where as long as tipped employees perform "related" duties (e.g., cleaning their station, setting up for service), they can still receive the tip credit for those hours, provided those activities don’t dominate their workday. What Action Is Needed from Employers? For most employers, this change will not require any immediate action, as the final rule effectively restores the pre-2021 approach. The main thing to note is that employers should continue to comply with the broader requirements of the Fair Labor Standards Act (FLSA) and ensure they are properly paying employees at least the federal minimum wage (including tips) when they apply the tip credit. Here are a few things to keep in mind: Reassess Timekeeping Systems: While the rule change simplifies some aspects of record-keeping, employers still need to ensure they have a timekeeping system in place that accurately tracks the hours worked by tipped employees. It is essential to ensure that the wages (base pay plus tips) equal at least the federal minimum wage. No Need for Immediate Adjustments: If you were already applying the pre-2021 tip credit rule, no changes are necessary on your part. For those who had adjusted to the "80/20/30" rule, reverting back to the previous method should not require significant changes. State and Local Laws: Employers should still be mindful of any state or local laws that may have stricter requirements than federal law. Always check your state’s labor regulations to ensure full compliance. Why Is This Change Important? The reinstatement of the simplified tip credit rule provides relief to many employers, particularly in industries like restaurants, hotels, and other service-based businesses where tipping is common. The pre-2021 rule is seen as more employer-friendly, offering more flexibility in how tipped employees can spend their time without losing eligibility for the tip credit. For employers, this means less administrative burden, reduced risk of compliance issues, and potentially fewer legal challenges. This shift is a step toward simplifying labor law compliance for businesses already struggling with the complexities of wage and hour rules. Looking Ahead As we move further into 2025, it’s important for employers to stay informed of any future changes in federal labor regulations. While this change restores a previous rule, the DOL’s stance on tip credits and wage issues can continue to evolve. Employers in tip-dependent industries should continue to monitor updates from the Department of Labor and legal rulings to ensure ongoing compliance. The DOL’s restoration of the pre-2021 tip credit rule is a welcome change for many businesses, offering a return to simpler guidelines and less restrictive requirements. For most employers, no immediate action is required, but it’s always a good idea to review your practices to ensure they align with the updated rule. If you need further assistance in navigating these changes, reach out to Simco to ensure your business stays compliant in 2025 and beyond. 

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