Lessons · Accounting · pay periods, and the weeks that go missing
Pay periods, and the weeks that go missing
A year does not divide evenly into months of four weeks. Weekly pay means fifty-two runs a year and fortnightly means twenty-six, while twelve months of four weeks is only forty-eight. Annualising a weekly figure by multiplying by four and then by twelve loses a month of pay.
Hone is a place to practise a career, one idea a day. This is one of its lessons, written out in full and free to read without an account.
In beta. This lesson was written for Hone and has not yet been checked by a qualified accountant. Practice material, not professional advice. What that means.
What it is for
It is a quiet arithmetic error with large consequences, and it appears in budgets, in offer letters and in accruals. It is also the source of the pay run that catches businesses out: a year with a fifty-third weekly run, or a third fortnightly run in a month, which is not a bonus and has to be planned for.
How to think about it
Annualise by the number of pay runs in the year, never by weeks per month. Then divide by whatever period you need.
Worked example
Weekly pay annualised: multiply by 52The number of runs, not 4 times 12.
Fortnightly: multiply by 26Same reasoning.
4 weeks x 12 months = 48 weeksFour weeks short of a year: a whole month's pay missing from the annual figure.
Some years have an extra runNot extra money earned. Extra cash out in that year, and it is planned for.
Your turn
Name how many weekly pay runs fall in an ordinary year.
Weekly pay is annualised by multiplying by
Solve one, graded on the server
The trap
Treating a month as four weeks. It is the single commonest payroll arithmetic error, it always understates the annual figure, and it survives because each individual month looks right.