Building a labor budget is no small feat, and a Leap Year adds even more complexity to the task. Understand its effect and learn how to side step it.
- Only company administrators can access the Budget Builder tool in BalancedComp.
- The Budget Builder's Annualized totals are strictly based on 365 days.
- The Budget Builder's Adjusted totals are based on the Scenario's:
- Start date
- End date
- Effective date.
- Leap year math can be bypassed by moving your end date forward one day, so the scenario only covers 365 days.
- If you leave 366 days in your Scenario, your adjusted totals will be around 0.27% higher (1/365 * 100 = 0.27 )
In this article we'll cover:
- Leap Year Math In The Budget Builder
- How to remove leap year math as a factor in your BalancedComp budget
- An explanation of leap year math and role of estimating with 2080 hours
Leap Year Math in the Budget Builder
Leap years only affect your Adjusted Increase and Adjusted New Wages totals.
These values are strictly based on the number of days between your Scenario's Start Date, Effective Date, and End Date. The extra day in a leap year will add about 0.27% to your Adjusted Increase ( (1/365) * 100 ) = 0.27.
Example
An Employee makes $10,000, has a Midpoint of $15,000, and qualifies for a 10% raise. We’ll use a Start Date of 1/1/2020, an Effective Date of 1/1/2020, and an End Date of 12/31/2020 for both a regular year and a leap year.
| Current Wages | CR | Increase | New Wages | Adj. New Wages | Adj. Increase | Proj. CR | |
| Regular Year | $10,000 | 66.67% | $1,000.00 (10.00%) | $11,000 | $11,000 | $1,000 (10.00%) | 73.33% |
| Leap Year | $10,000 | 66.67% | $1,000.00 (10.00%) | $11,000 | $11,030.14 | $1,030.14 (10.30%) | 73.33% |
Adjusted New Wages and Adjusted Increase must account for how much an employee makes on a daily basis in order to reflect the Start Date, Effective Date, and End Date.
In the leap year example above, Adjusted New Wages is calculated based on the employee making $11,000 for 366 days (11000/365) * 366 = $11,030.14.
Even if an employee receives a 0% annual increase, on a leap year their adjusted increase will still be around 0.27%.
How to Remove Leap Year Math as a Factor
- Click Budgets in the main nav. Then, select the Available Scenarios card.
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Click Add Scenario. Then, select New Labor Budget Scenario.
- Now that you are in the Budget Builder, give your new Scenario a Title, then click Next.
- This next step, the Timeframe, is where you can address this issue. The system's default of 1/1 - 12/31 will show 366 days during a Leap Year:
However, if you want your Scenario based on 365 days, you'll need to adjust the end date from 12/31 to 12/30. Then, click "Next" to preserve that change and move on to the next step.
- You can now proceed through the rest of the steps, building a scenario based on 365 days rather than a leap year!
Leap Year Math and the Role of 2080
Basing hourly wages on 52 weeks or 2080 hours a year is a somewhat misleading oversimplification that we’ve all leveraged. Albeit seemingly minor, it’s a mathematical error that underestimates your budget by thousands of dollars every year.
If it were up to us, we would change the game and stop using 2080 hours in our budget builder since it actually only equates to 364 days. But we can say with certainty that some clients would come down on us with the fire of a thousand suns for not using 2080 because it’s the standard.
The aforementioned discrepancies with the 2080 rule become amplified during leap years. That extra day may only occur every four years, but its effect on budget building can last far longer.
Below, we’ll explain how the math works (or doesn’t, rather), as well as steps you can take to prevent any issues as you build your budget for the leap year.
Our eyes were opened to the 2080 flaw at the end of 2015. Our clients started running BalancedComp's budget builder to get 2016 numbers and couldn’t understand why the adjusted totals were slightly higher than the annualized totals (which are strictly based on 365 days). We quickly realized 2016 was a leap year, so there was an extra day included in the adjusted totals.
Problem Solved. Right?
Well, it was, until we went all ‘Beautiful Mind’ on the office windows trying to figure out how we could ensure one day of wages was being accurately calculated.
Boom. Handled.
Here’s how that math works out
Let’s say Herbie Hancock works 40 hours/week and earns $10/hour. At $10 * 2080 hours, his annual wages should be $20,800...right?
Nope.
Which means…
We don’t like it, not even a little.
Sure, we could all call it 2080 for the sake of argument, write off the seemingly minuscule difference, and have one less thing to worry about.
But we built a web application. With a computer. That uses math.
So this is what the status quo looks like:
Budget Builder: How many days are in this budget?
User: 365
Budget Builder: Super. I see that Herbie works 40 hours a week and makes $10 an hour. You said 365 days, right? Let me just turn that into weeks real quickly and uhhh … order of operations ... carry the 1 … 8s look like 0s that have tight belts on ... focus! … ok, that’s 52.14 weeks, and he’ll make $20,856! Nailed it!
User: Nope. Don’t do MATH math.
We understand that the 2080 rule significantly simplifies the process of estimating annual wages for hourly employees. We can also see why someone would use it if they were building a labor budget by hand in a giant spreadsheet. But our budget builder does an impressive amount of math in mere seconds, and it could easily incorporate a full 365 days, or 2085.6 hours if it weren’t hindered by the standard.
Ultimately, we were forced to do some crafty math to make the accurate 365-day math inaccurate so it aligns with best practices.