Christmas is a busy time of year for everyone, but for those processing payroll it is a particularly hectic time, with lots of potential changes to be aware of. Payroll Junction is here to help with our guide to everything you need to know about processing payroll at Christmas.
How Christmas shutdown periods affect payroll
If you normally pay your employees on the last working day of the month, and you shut down over Christmas, this means you will need to process your payroll early. This means that you will need to bring your payroll processing timetable forward, and notify employees in advance that their payday will be different.
If you are paying employees fortnightly, then you should bear in mind that you may not be back in time from the Christmas shutdown to process their first January payment, so you will need to include this in their December pay packet.
If any of your employees are on Maternity Leave and you have changed the December pay date, this will affect their average holiday pay. You will need to check whether your payroll software automatically adjusts for this and if not adjust the calculation manually so that they get paid correctly.
If you are directly employing additional seasonal workers during the Christmas period, they need to be set up and treated the same as your permanent employees, with the same benefits and rights. When onboarding new seasonal workers, you will need to factor in the time needed to complete paperwork and get them set up on your payroll system before the early December pay date!
How do you report early Christmas pay?
The good news is that you don’t need to make any adjustments to how you report December pay, even if the date is altered. You just need to report your normal payday as the payment date on your Full Payment Submission (FPS) and make sure that you submit it by this date.
An example provided for Christmas by HMRC is “if you pay on Friday 17 December 2021 but the normal (or contractual) payment date is Friday 31 December 2021, please report the payment date on the FPS as 31 December and ensure the submission is sent on or before 31 December 2021.”
The pay date recorded on the FPS should always be the contractual pay date. This will help protect any employees’ universal credit eligibility, avoiding double monthly earnings in one assessment period. Where two payments are received in one assessment period, universal credit can be reduced, as it is a means-tested benefit.
What if you don’t shut down over Christmas?
If some or all of your employees carry on working through the Christmas period, you need to be aware that there are three bank holidays during this time: Christmas Day, Boxing Day, and New Year’s Day. Depending on the terms of their contract, your employees may be entitled to extra pay for these days, and payroll processing for December and January will need to take this into account.
What else do you need to know about payroll at Christmas?
Many companies give cash bonuses at this time of year, but these count as taxable earnings. For payroll purposes you will need to add the value of the cash to the employee’s December earnings, and then deduct and pay PAYE tax and Class 1 National Insurance. You will also need to report the bonus amount in your payroll reporting.
If you give employees gifts for Christmas they must be reported on form P11D, and Class 1A National Insurance must be paid. This is unless they count as a Trivial Benefit, which is a gift that costs £50 or less, is not cash or a cash voucher, and is not a reward for their work or performance, or part of their contract terms.
Finally, if your holiday year ends in December, and your holiday booking system links directly to payroll, you will need to set up annual leave entitlement – including bank holidays – for the new year before you leave for your Christmas break. This ensures that employees can book the correct amount of holiday, and don’t get paid for more or less than they are entitled to.
If this all sounds like a major headache, why not outsource your payroll processing to Payroll Junction? Get a quote today!