Rare year with extra paycheck costs city $8.1 million

This is a pay period “leap year” for employers—including the city of Indianapolis and other governments—that pay on a bi-weekly schedule, an anomaly that comes around once every 11 years.

That means city employees will get one more check as this year draws to a close than they did in 2014.

For the city, it’s an $8.1 million dilemma, one that Indianapolis City Controller Matt Kimmick realized last year that he’d be facing. The big question: How to pay for it?

The problem is that there are 27 pay periods in 2015 for employees paid bi-weekly instead of the usual 26. Since 26 bi-weekly pay periods only add up to 364 days a year, the extra day each year adds up over time, creating the occasional financial problem for employers.

“We will have another one in 2026 and the last one was 2004,” Kimmick said. “Unfortunately it never cancels out. It’s a unique thing associated with the timing.”

The situation can be stressful for municipalities with tighter, less flexible budgets.

“It’s like the full moon,” said city spokeswoman Jen Pittman. “It happens once in awhile, it makes everyone crazy, then it goes away.”

Even though Kimmick discovered that there would be a 27th pay last year, it wasn’t accounted for in the 2015 budget. The city first planned to address it by changing the pay schedule to semi-monthly.

On a bi-weekly schedule, workers get a check every two weeks on a set day, such as Friday. On a semi-monthly schedule, workers receive a check on the same date of each month, such as on the 1st and 15th of the month.

“As we looked at the options, we felt we were so far along that those options were not allowable,” Kimmick said. “We were going to have to figure out a way to pay for it.”

Kimmick said the extra $8.1 million liability has been handled through a combination of cost savings and efficiencies—and asking for more money from the City-County Council. About $4.8 million of the liability has been funded through savings.

He thanked city employees for saving money in their departments.

“I give them a lot of credit,” Kimmick said. “This wasn’t good news that I delivered and they really buckled down and look to find ways to where they could cover this in their existing budgets.”

The city of Greenwood also faced the same conundrum.

Greenwood Controller Adam Stone said his city asked for an additional appropriation from the city council to cover the $600,000 it costs for one payroll for Greenwood employees.

“It didn’t really compromise anything else we had planned,” Stone said. “[Our employees] are actually quite excited about it based on the fact they’re getting another payday right after Christmas, so that always works out.”

Ultimately, Kimmick said, this is an anomaly that is better handled in advance. He suggested that Hogsett look at different options to address it, including switching to a bi-monthly pay period for city and county employees.

“I certainly think it’s something that needs to be looked at,” Kimmick said. “You can change the pay cycle, or you can start capturing dollars and putting those aside in order to save for this. The liability is going to be the same regardless, but it’s all going to hit in one year or be spread out.”