Preparing for Christmas payroll with Smartly

We all know payroll can be complex during the Christmas period so we’re sharing some special tips in our Christmas edition blog. Every year leading up to Christmas we get hundreds of calls and emails about how to manage Christmas payroll.

We cover common payroll pain points and things you should be aware of leading up to the summer break. We’ll touch on Mondayisation all the way through to how to run your Christmas pay and key things to remember.

We’re going to cover off eight key areas:

1. Getting your payroll sorted early
2. Running your Christmas pay – key things to consider
3. Bonuses and paying out leave
4. Working on a public holiday
5. Mondayisation
6. Closedown periods – what are the rules
7. When are banks open to process payments?
8. How can Smartly help?

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

1. Getting your payroll sorted 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! Communicate with your team early and get your Christmas rosters and shut down periods? locked in. This way you can organise pay cycles and annual leave. Sometimes it’s hard to know, but do what you can to make it simple.

You’ll want to ask yourself some of the following questions to help prepare:

• Are we closing down during Christmas and New Years?
• Who’s taking leave? What type of leave are they taking? (e.g. annual leave or leave without pay)
• If you’re open, who’s working and when?When are the public holidays? Will anyone be working on those days?
• What days do the public fall on this year (we’ll help you with this later in the blog)
• Do I need to run multiple pays in advance of Christmas?

Our blog should help answer some of these questions! Once you’re happy with these questions and worked out a plan, then it’s important to let your team know, especially if there’s any changes to the norm. 

2. Running your Christmas pay - key things to consider

There’s a few things you should consider when running your Christmas pay:

1. Make sure you’re running a regular pay cycle and don’t mix things up. Set it up in advance so you can manage different periods of leave appropriately.
2. It’s important to ensure the period of pay matches what your staff member is being paid for.
3. It’s common to be considering leave in advance or leave without pay during the Christmas period for your team. Make sure you and your team are aware of the different types of leave available and how they can use them. Things like Leave Without Pay can add extra steps to your payroll.
4. 2021 has been a full-on year, with lots of changes and challenges for businesses throughout New Zealand. If you can, be flexible with your people and put all options on the table.
5. If it all lines up, then you’re good. Hit go! 

We’ll also cover off specifics around bonuses, cashing out annual leave, public holidays, and of course mondayisation. It’s all in here, so have a read and make sure you’re prepared this Christmas.

Working out how much annual leave a team member will accrue 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  now has future leave balances built into our app if you are on Payroll Two or Three!

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

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

The formula to keep handy

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

[sub-total hours] x 4 = [total hours]

([total hours] ÷ 260) x 5 = [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? 

Follow the steps below:

OR if you're a numbers person...

37.5 x 5 = 187.5 hours
187.5 x 4 = 750 hours
(750/260) x 5 = 14.4 hours. 

Rachel will accrue 14.4 hours of annual leave by Christmas. 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 here

3. Bonuses and paying out leave

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 (annual or special bonus). These are considered one off payments and you’ll want to make sure you deduct the correct tax. Most payroll systems should do this automatically for you. If not, here’s a basic guide:

Work out your employees 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 some payroll software you can 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. You can follow the same process as above. 

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.

4. Working on a public holiday

To determine how your team should be paid when they work on a Public Holiday, you need to check if they usually work on this particular day.

• If the public holiday 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.
• An employee doesn’t need to work a public holiday unless they would normally work on this day and it’s stated in their employment agreement. Employment NZ have put together five employment tips for Christmas where they dive into public holidays and other common questions.

5. Mondayisation

This Christmas all our public holidays fall on the weekend. This brings about some payroll complications which are good to understand.

During the Christmas and New Year’s period of 2021/2022 we have the following statutory public holidays which fall on a weekend:

• Christmas Day (Saturday 25 December)
• Boxing Day (Sunday 26 December)
• New Year’s Day (Saturday 1 January)
• Day after New Year’s Day (Sunday 2 January).

If your employee doesn’t usually work on these days, maybe they work Monday – Friday, then it’s Mondayised. To put it simply: 

• Christmas Day is observed on Monday 27 December
• Boxing Day is observed on Tuesday 28 December
• New Year’s Day is observed on Monday 3 January
• Day after New Year’s Day is observed on Tuesday 4 January.

Employment New Zealand have designed a handy flow chart to help understand what happens when public holidays fall on a weekend. It’s a good chart to keep close by at this time of the year.

We’ve put this into a couple of scenarios to help explain:

Scenario 1:

Scenario 2:

There are also additional rules around ‘normal’ working days. Employment NZ have broken down Mondayisation in detail with a range of scenarios to help.

6. Closedown periods - what are the rules

Closedown periods happen every year and it differs between industries and organisations. Some organisations opt to closedown, others decide to stay open. What’s important to remember is that if your business has an annual closedown, you need 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, and
• 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 if the public holiday falls on a day they’d usually work. Employment NZ has more useful information and tips about closedown periods and annual leave.

7. When are banks open to process payments?

Payments between banks aren’t processed on public holidays, for example Christmas and Boxing Day. The best way to manage this is to set up payments to go through early and avoid any doubt.

Outgoing and incoming payments: 

• For example, outgoing payments that normally happen on a Monday or Tuesday (Christmas Day and Boxing Day observed 2021) won’t be processed until the next business day, Wednesday.
• For incoming payments, you may see money coming through to your account earlier as organisations often setup payments to go through earlier during the Christmas period.

8. How can Smartly help?

Smartly are open to support our customers on working days from 7am till 7pm. We’re here to help with any issues or questions. Our Help Centre is available anytime to answer your questions.

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.

This year we’ll be running an online Christmas webinar you can register for here where we will go through a live demo of running your Christmas pay as well as answering any of your questions. 

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@smartlyco.nz.

There you have it, the ins and outs of Christmas payroll with our top tips. If you’re interested in signing up to Smartly learn more about our plans and features here. 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.