This content was created by Smartly Payroll and has been published here with permission.
Payroll can be complex during the Christmas period. Holiday pay and annual leave can be tricky to calculate accurately, especially for casual and part-time workers.
This blog covers common payroll pain points and things you should be aware of leading up to the summer break. From mondayisation all the way through to bonuses and close down periods.
Get started early
Communicate with your team
Calculate your employee’s leave accrued by Christmas
Add bonuses and paid out annual leave correctly
Become an expert in mondayisation
Know how to pay staff on a public holiday
Understand the rules of closedown periods
Know when your bank is open to process payments
Now it’s time to get into the detail and make sure you and your payroll team are ready this Christmas.
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 prepared 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.
And of course, read this blog to help you deal with all the items above and more!
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 due to bank closures, so make sure you let everyone know when they can expect to be paid over the holiday period.
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.
For team members on the same standard hours each week (e.g. 37.5 hours)
Here’s a formula to help you estimate the amount the employee will accrue between now and Christmas.
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?
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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.
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 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.
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.
When public holidays fall on the weekend like they do this Christmas, there are some payroll complications which are good to understand, like what on earth is mondayisation?
During the Christmas and New Year’s period of 2022/2023 we have the following statutory public holidays:
Christmas Day (Sunday 25 December)
Boxing Day (Monday 26 December)
New Year’s Day (Sunday 1 January)
Day after New Year’s Day (Monday 2 January).
When these holidays fall on a weekday, they are observed on the actual day. When they fall on a weekend it depends whether your employee would usually work that day:
If the employee would usually work on the weekend day, then the public holiday is observed on the actual day.
If your employee doesn’t usually work on the weekend, then the holidays that fall on Saturday or Sunday are observed on the next non-holiday day instead. This year that would result in the following:
Christmas Day is observed on Tuesday 27 December
New Year’s Day is observed on Tuesday 3 January
We’ve put this into a couple of scenarios to help explain:
Scenario 1:
Scenario 2:
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 and a calculator to help you work it out.
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.
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.
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.
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 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.
Payments between banks aren’t processed on public holidays, for example Christmas Day and Boxing Day. The best way to manage this is to set up payments to go through early where possible.
For example, outgoing payments that normally happen on a Monday or Tuesday (Christmas Day and Boxing Day observed 2022) won’t be processed until the next business day, Wednesday. So, if your normal payday is Monday or Tuesday, you might want to schedule your pay to go out on Friday December 23rd.
For incoming payments, you may see money coming through to your account earlier as many organisations set up payments to go through earlier during the Christmas period.
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.
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.
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