APA's Top Payroll Questions & Answers for 2020 - 47

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APA's Top Payroll Questions & Answers for 2020

Constructive receipt of pay dated January 1, 2021

Our employees are paid biweekly on Fridays. Our first Friday payday
for 2021 will be January 1. Because January 1 is a bank holiday, we will
deposit employees' pay on December 31, 2020. Employees are paid by
direct deposit and paper checks. The direct deposits for January 1 will
hit employee accounts on December 31. Employees receiving paper
checks will be able to pick them up in the payroll office on December
31. Our accounting department says that the December 31 pay should
be considered a third payroll for the month of December and should
appear on employees' Forms W-2 for 2020. Pay stubs and paper
paychecks would still be dated January 1, 2021, which I think puts
them into 2021. Who is correct?

A.

What matters here is the idea of constructive receipt, which is the
day your employees have free and clear access to their pay (see
The Payroll Source®, §6.1). If your employees have access to their pay
on December 31, then your accounting department is correct. It does
not matter when the checks are dated.
In the case you describe, employees with direct deposit will have
access to their pay on December 31, while employees not on direct
deposit will be able to pick up a paper check on December 31 that is
dated January 1. This would involve two constructive receipt times -
December 31, 2020 for the employees on direct deposit and 2021 for
the employees receiving a paper paycheck. Regardless of the date
that is printed on an employee's paycheck, the date it is actually or
constructively provided to the employee is the date that triggers an
employer's withholding, deposit, and reporting obligations. Even though
your employees would get a paper check on December 31, the fact
that it is post-dated to January 1 means the check cannot be cashed
until 2021.
To avoid administrative and reporting headaches, it would be
advisable to make direct deposit available to employees on December
31 and give the employees not on direct deposit paper checks
also dated December 31. Although you could pay all employees
constructively in 2021, this can cause morale issues (which is why

47

Withholding Taxes

Q.



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APA's Top Payroll Questions & Answers for 2020

Table of Contents for the Digital Edition of APA's Top Payroll Questions & Answers for 2020

Table of Contents
APA's Top Payroll Questions & Answers for 2020 - Intro
APA's Top Payroll Questions & Answers for 2020 - Cover1
APA's Top Payroll Questions & Answers for 2020 - a
APA's Top Payroll Questions & Answers for 2020 - b
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APA's Top Payroll Questions & Answers for 2020 - Table of Contents
APA's Top Payroll Questions & Answers for 2020 - e
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