What does a 4-5-4 calendar look like?
When we’re talking about calendars, context is key. Typically, people are used to the Gregorian calendar that begins on January 1st and ends on December 31st. While there are different calendars used in different cultures, the Gregorian calendar is the international standard in government and business.
While everyone is familiar with this setup, there are some financial pitfalls to this method. The civil calendar doesn’t focus on consistency, which is critical for good accounting practices. Some years like 2020 start on a Wednesday and have an extra day in February, which ends on a Thursday. The last weeks of the year also have holidays on both Fridays, Christmas and New Year. This can lead to miscalculations and needing to pay holiday time if not carefully considered.
You can imagine the scheduling nightmare that would ensue if the sales-focused schedule had to coordinate with payroll in a month where there are only three Wednesdays, a common payroll processing day to ensure Friday paychecks. There could be untold retail chaos when last-minute prime shopping days fall on Tuesday and Wednesday instead of the usual weekends. The chance of needing to pay someone overtime pay is already high during the holidays and even more so when following an imperfect calendar.
Splitting up the weeks for retail efficiency
Retailers in America discovered in the 1930s that weekends are prime shopping days, a trend that has persisted through the decades. It became increasingly difficult to provide accurate quarterly reports when each quarter has a different number of weekends. This is because retailers generally use periodic average sales figures to create projections for the next quarter, and they need a consistent number for accurate calculations.
Without some change to the retail calendar, sales periods can get confusing and difficult to report. As a way to bring a sense of fiscal order to the calendar, retailers made the executive decision to deviate from the civil calendar and split the year into 52 weeks that always begin on a certain day. They also decided to include the end-of-year holiday shopping season in Q4 by extending it to the end of January of the next year, so the retail calendar always begins on the first Sunday of February.
This helps companies create consistency in their sales seasons. If the Q4 sales period ended on the last day of the year, it would be difficult to initiate end-of-quarter financial processes in the middle of a holiday season. Next periods’ sales forecasts would be inaccurate and lack essential information from the end of the previous sales period. It could also cause inaccurate expense reports and forecasts for the same reasons.
Because the 4-5-4 calendar includes 52 weeks (52 x 7 = 364) instead of 365 days, we have one day lost each year. There are leap years in the 4-5-4 calendar where it may have 53 weeks if there would be four or more days leftover. If there are less than four days to consider, they would be added to the next period. Each quarter alternates in length with the first having four weeks and the next having five. This pattern continues through the year.
In this way, holidays line up, and employers run their businesses more efficiently. Reformatting the calendar to a more retail-friendly style means that sales can be recorded in a manner that makes inconsistent weeks more comparable to other periods and more predictable. This lends ease to scheduling and accounting and makes it simpler to apply standardized business metrics to your sales and projections.
This revolutionized the industry’s standard accounting practices, and retailers began to adopt the method nationwide in the 40s. This system is the basis of the National Retail Federation or NRF calendar and is now standard in retail operations. The NRF has a guide for employers to see what any years’ 4-5-4 calendar looks like.
How a 4-5-4 calendar affects scheduling
By starting each week on Sunday, payroll departments are always able to manage timesheets and input wage info by Wednesday. This helps employees get paid by the end of the week and increases overall employee satisfaction. It also makes accounting easier when there are steady numbers to work with.
When employees are always expecting the same days off, they can make leave requests well in advance and secure their preferred days off more easily. If you follow a calendar by the date instead of a weekday, it can be difficult to predict the exact day of a given event. For example, hobby clubs or support groups might meet on the second Tuesday of each month rather than a specific date, such as the 7th, which makes scheduling more predictable.
By using the 4-5-4 calendar, you can see the work schedule by day, and every week can be expected to have the same flow as the week before. Paydays always line up as do Wednesdays and the end of the week, Saturdays. This makes life more predictable for everyone and makes automated processes easier as well.
4-5-4 calendar FAQs
Do I have to follow a 4-5-4 calendar in my retail business?
No, this is simply the NRF standard and is an extremely helpful tool in running a successful retail business. However, businesses are free to choose their own practices. Some stores still keep records using pencil and paper, for example.
Does the 4-5-4 calendar change my annual reporting requirements?
The fiscal calendar strengthens annual reports because of the consistency it provides over the quarters. Financial documents still need to be filed annually as appropriate for your company and location. Make sure to properly report with the IRS when changing your accounting practices.