Abra-cash-dabra: An extra paycheck for some lucky workers
By Linda Formichelli • Bankrate.com

Workers, rejoice! This year some lucky employees will take home an extra paycheck.

No, it's not a bonus for being so gosh-darned nice or good-looking (even though we know you are).

This windfall instead results from the wonky Gregorian calendar that the American colonies adopted back in the mid-18th century. With 365 days in most years, the division of the year into 52 weeks leaves one extra day on its lonesome, which means that a year that begins on a Monday will also end on Monday.

Leap years throw another "extra" day into the fray. And since 2004 began on a Thursday, this year contains 53 Thursdays and Fridays instead of 52. This means that some salaried workers who are paid on Thursday or Friday will be in line for 53 paychecks instead of 52 if they're paid weekly, or 27 paychecks instead of 26, if they're paid biweekly -- but only if they received their first check this year on Jan. 1 or 2.

This happy situation will not affect employees who are paid bimonthly (say, on the 15th and 30th of every month), those who are paid on any day other than Thursday or Friday, or those who receive an hourly wage instead of a salary.

But if the stars align for you, a bonus paycheck may be in your future. If you're salaried at $26,000 per year and are paid in weekly checks of $500, you could get $26,500 this year.

Good news?
Whoa, there -- don't head out to the malls to blow that wad just yet. Most employers are aware of the glitch, too, and you know they're not eager to pay more than they have to.

Employers have several options: They can give their employees the extra check, reduce the amount of each paycheck or withhold the final check of the year. "[Withholding the last check] doesn't go over very well with employees," says Steve Sarowitz, president and founder of Ameripay Corporation, an independent payroll service in Elk Grove Village, Ill. "Nobody likes to not get paid in December."

Some employers are just letting the issue go and coughing up the extra dough for their loyal employees. "My assumption is that most companies are ignoring the issue because they don't know it exists or because the easiest path is to do nothing," says Sarowitz.

Rob Wilson, president of Employco Group, a Chicago-based professional employer organization, agrees. "We did have a couple of clients that raised the issue and are having us divide salaries by 27 periods, so those employees will see a small adjustment," he says. "But the majority of our clients are handling the week as an extra week and not making any changes, so their payroll isn't getting reduced. The employees will be getting an extra check."

This is strange, considering that going this route will cost employers mucho moolah. "It would cost companies who pay biweekly and whose first 2004 check fell on either Jan. 1 or 2 an additional 3.8 percent for salaried employees," says Sarowitz. "Companies that pay weekly will be paying an extra 1.9 percent in additional salary."

Bad news?
Years such as this one can present a problem for calculating withholdings such as taxes, retirement savings and health insurance. Twenty-seven paychecks can mean some extra retirement savings (woo hoo!), but at the same time another week of insurance deductions (boo, hiss).

Many employers deduct insurance costs from paychecks four times per month -- meaning that for months with five paydays, the fifth paycheck is deduction free. Employees who work at companies with this setup won't have their insurance payments affected by the extra check.

Employers may choose to lower the amount taken out of each paycheck or not deduct insurance from the last paycheck of the year. In any case, Wilson urges workers to check their pay stubs to make sure their costs for coverage have been adjusted to reflect the extra pay period.

As for taxes, salaried workers can adjust tax withholdings per paycheck, though the dollar savings may not be worth having to fill out an additional W-4.

Use it, don't lose it
So, say good fortune shines on you and you end up with an extra paycheck this year. What should you do with it? There's always the reasonable option of investing the money or using it to build an emergency fund, but Sarowitz has another suggestion.

"I think they should go out and buy some nice holiday presents -- Christmas, Hanukah, Kwanzaa," he says. "Treat yourself -- our economy can always use people spending more money."