Preparing for Christmas Payroll

Every year leading up to Christmas we get hundreds of calls and emails about how to manage Christmas payroll.

This blog covers common payroll pain points and things you should be aware of leading up to the summer break. From bonuses and close down periods.

We need to consider the Mondayisation as the public holidays fall on a weekend.

Christmas Day - Friday 25 December 2026

Boxing Day - Saturday 26 December 2026

New Year's Day - Friday 1 January 2027

The day after New Year's Day - Saturday 2 January 2027

Top tips for managing Christmas Payroll:

1. Get started early
2. Communicate with your team
3. Calculate your employees' leave accrued by Christmas
4. Add bonuses and pay out annual leave correctly
5. Know how to pay staff on a public holiday
6. Understand the rules of closedown periods
7. Plan pays in advance
8. Check your bank is open to process payments
9. Ask for help when you need it!

Now it’s time to get into the detail and make sure you and your payroll team are ready this Christmas.

1. Get started early

Leading up to Christmas is often a busy period and the last thing you want to worry about on Christmas Eve is paying your people! There are a few things you can do right now to get your penguins in a row for Christmas payroll:

• Work out which days your business will be open over the holidays and how many staff you’ll need to cover this period

• Decide if you’ll be giving a bonus and how you’ll calculate what each employee will receive

• Check if you need to change your usual payday due to the holidays or run multiple pays in advance if you’re going away

• Get acquainted with Smartly’s leave calendar so you can see at a glance who's on leave, who's planning leave, and when! 

• And of course, read this blog to help you deal with all the items above and more! 

2. Communicate with your teams

Communicate with your team early and get your Christmas rosters and closedown periods locked in. This way you can organise pay cycles and annual leave well in advance. 

• Let your employees know approximately how much leave they’ll have accrued by Christmas. If you’re not sure how, check out tip #3!

• If your business is closing down over the holidays, you should inform your team well in advance so they can book in their annual leave or leave without pay

• Pay days can change over the holidays, so make sure you let everyone know when they can expect to be paid over the holiday period 

3. Calculate your employees’ leave accrued by Christmas

Everyone wants to know how much leave they’ll have by Christmas. Thankfully, we’ve got an easy formula for you and your team to use in certain scenarios. This way you can work out their leave. If you want things to be super simple, Smartly also has future leave balances built into our employee app! 

Here’s a formula to help you estimate the amount the employee will accrue between now and Christmas. 

For team members on the same standard hours each week (e.g. 37.5 hours)

The formula to keep handy:

[standard work hours per week] x [number of weeks until Christmas] = [sub-total hours] 

[sub-total hours] x [# of weeks of annual leave] = [total hours]

([total hours] ÷ [working days in a year]) x [working days in a week] = [hours of annual leave accrued before Christmas]  

For example:

Rachel works 37.5 hours per week and is working all 4 weeks until Christmas. Currently, Rachel has 45.6 hours of annual leave. So, how do we figure out how much annual leave she’ll have available by Christmas?  

37.5 hours per week X 5 weeks until Christmas = 187.5 hours X 4 weeks of annual leave = 750 hours

750 hours divided by 260 working days in a year X 5 working days in a pay period =      14.4 hours

Rachel will accrue 14.4 hours of annual leave by Christmas. So, including her existing leave balance of 45.6 hours, she’ll have 60 hours (8 days) of leave available to use over the Christmas and New Year’s period.

Note: Your leave balance in hours/days is an approximation only, it’s the leave balance in weeks that will always add to four weeks for every 12 months of consecutive employment. You can read more about leave in weeks.

4. Add bonuses and pay out annual leave correctly

It’s common at Christmas for businesses to pay out a bonus, or for their employees to cash up annual leave, generally as a lump sum payment (annual or special bonus). These are considered one off payments and you’ll want to make sure you deduct the correct tax. Payroll software like Smartly makes this easy by calculating it automatically for you. But if not, here’s a basic guide:

Work out your employee’s income bracket (e.g. $48,001 to $70,000) and apply the tax rate for that income bracket to the bonus. To do this:

• Work out what your staff member has earned, before PAYE, over the last 4 weeks.

• Multiply this figure by 13 (or 12 if they are paid monthly). 

• Add the bonus (lump sum) amount to the outcome above.

• See what tax bracket this figure sits in.

• Deduct the appropriate PAYE amount from the bonus.

• Inland Revenue has detailed information about how to get this right, along with information about PAYE tax brackets and secondary taxes.  

Tip: In Smartly, you are able to reduce the KiwiSaver contribution rate for a specific pay, which could include a lump sum payment. The employee may request this one-off change and then revert back, as long as you agree. For example, if the employee is contributing at 8%, they could drop their contribution rate to 3% for this pay period. It’s also the same for employees who request to cash up annual leave. 

A maximum of one week (of an employee’s four-week entitlement) can be cashed out every 12-months of continuous employment. Details for cashing up annual leave need to be agreed in writing and requested by the employee, the employer may say no. Employment NZ has some useful information about cashing up annual leave. Or, check out our simple step-by-step instructions on how to cash up annual leave in Smartly. 

5. Know how to pay staff on a public holiday

To determine how your team should be paid on a public holiday, you need to check if they would normally work on this particular day, and whether they will be working any hours on the public holiday. 

Employees working on the holiday:

• If the public holiday (or public holiday observed) is their normal working day, the employee should be paid time and a half for the hours worked plus they are also entitled to earn an alternative public holiday (day in lieu).

• If it’s not their normal work day, the employee is only entitled to be paid time and a half for the hours worked. 

Employees not working on the holiday

• If the public holiday (or public holiday observed) is their normal working day, the employee should be paid a statutory holiday taken.

• If it’s not their normal working day, they are not entitled to holiday pay. 

• If an employee is on leave when there’s a public holiday and they normally would have worked on that day, then they are entitled to be paid for the public holiday and not use their leave balance. 

When an employee has a lot of variation in their work schedule, it may be hard to decide if they normally would have worked on the day of a public holiday. Employment New Zealand’s otherwise working days has more information to help you work it out. You can also refer to Employment New Zealand's website for more public holiday scenarios. 

6. Understand the rules of closedown periods

Closedown periods happen every year and differ between industries and organisations. Some businesses opt to closedown, while others may decide to stay open. What’s important to remember is that if your business has an annual closedown, you need to give your people at least 14 days written notice. This is so the appropriate leave arrangements can be put in place and payroll can be ticked off.

When you closedown, employees will need to do the following: 

• take annual leave while your business is closed down, or

• take leave in advance or leave without pay (agreed) if they don’t have enough annual leave available to cover the closedown period.

This is only applicable for employees who are entitled to annual leave. Under the Holidays Act (2003), employees not entitled to annual leave at the time of the closedown must be paid 8% of their gross earnings as at the start of the closedown date and their anniversary date for annual leave reset.

Closedown periods often include public holidays. Remember to pay your team for the public holiday and not use their leave balance if the public holiday (or public holiday observed) falls on a day they’d usually work. Employment NZ has more useful information and tips about closedown periods and annual leave. 

7. Plan pays in advance

If the person responsible for payroll wants to go on holiday and forget all about work, how will your staff get paid? Luckily, with Smartly you can enter pays up to 30 days in advance, so you can get everything sorted in advance to pay your employees automatically on your chosen dates, while you’re relaxing on holiday.

And make sure you check out tip #9 below so you set your dates for when the banks are processing.

8. Check your bank is open to process payments

Many banks are processing seven days and are not affected by public holidays. However, it is best to confirm with your bank to make sure your payments are not held up.

Smartly currently does seven day banking with ANZ, ASB, BNZ and Westpac only. For clients with other banks, please process your payments on business days. 

9. Ask for help when you need it!

Smartly are open to support our customers on working days from 8am till 6pm. We’re here to help with any issues or questions. Our help centre is also packed with guides and videos, and available 24/7 to help you out.

If you’re already using Smartly, we’ve put together a handy Christmas Payroll Guide so you can get prepared this Christmas. We cover off some common Christmas additions to your payroll and how to do this using Smartly.

If you or your team have any questions, please get in contact with our friendly support team on 0800 10 10 38 or email helpdesk@smartly.co.nz.

There you have it, the ins and outs of Christmas payroll with our top tips. If you’re interested in learning more about Smartly, check out our plans and features and book a demo with our friendly team. We know payroll can be a headache. At Smartly we make it simple to pay your people on time, accurately and in line with regulation.

More information

It’s not always a straightforward situation so we suggest contacting MBIE on 0800 20 90 20 if you’re unsure about anything to do with your team or business this Christmas.

Disclaimer: The content of this article is general in nature and is not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose. We expressly disclaim any liability to you or your business in relation to the information contained in this article, and you rely on any information solely at your own risk.