The payroll procedure during the Christmas period is a little trickier than usual. But not to worry – these few tips should be able to get you sorted.
1. Get a plan going
It’s always best to sort out administrative issues ahead of time, especially when heading into holiday season.
To be as prepared as possible, you can ask yourself the following questions:
- Is my business closing down during Christmas and New Years?
- Are any staff taking leave? What type of leave are they taking (e.g. annual leave or leave without pay)?
- If my business is staying open, who is working and when?
- Will anyone be working on public holidays?
- Will I need to run multiple pays in advance of Christmas?
These questions should be able to frame your strategy in managing payroll.
Once you have formulated a plan, you should let your team know as early as possible, especially if there are any changes to what is normally done.
2. Take note of leave arrangements during the shutdown period
If your business does have a shutdown period, you will need to give your team at least 4 weeks notice to settle appropriate leave arrangements.
The early notice will also allow you to prepare and submit payroll without any hiccups.
During the shutdown period, employees who are entitled to annual leave will be able to:
- take annual leave;
- take leave in advance or leave without pay (that has been agreed to) if they do not have sufficient annual leave remaining to cover the period; and
- while on paid leave, employees still accrue annual leave and personal leave.
Should the shutdown period include public holidays, which is usually the case, be sure to pay your employees if the public holiday falls on a day they would normally work.
3. Things to consider when running your Christmas pay
When you run your Christmas pay, you will want to consider a few things:
- Be sure that you are running a regular pay cycle and set it up in advance in order to manage different periods of leave appropriately.
- Check to see that the pay period matches the dates your staff member is being paid for.
- Communicate with your staff to ensure that they are aware of the different types of leave available and how they can be used. Be aware that different types of leave such as leave without pay may add steps to your payroll.
- Given all the changes we’ve gone through in 2020, try to be as flexible as you can with your team and put all the options on the table!
4. Be careful with employment status when dealing with payroll during holidays.
Full-time employees who ordinarily worked during those working days are to be paid at the base rate on their ordinary hours for the day, even though they did not work during that period. If they work during the period, public holiday worked rates apply.
For part time employees, this works the same way but additional care is needed to ensure their ordinary days worked are checked to see if they are entitled to the holiday pay that falls on that date.
Pay Period = 21st December 2020 to 3rd January 2021.
For a full-time 38-hours employee, they will be paid :
- 7.6 hours x 3 days = 22.8 hours at base rate – public holiday not worked (25th, 28th December and 1st January)
- 7.6 hours x 4 days = 30.4 hours at base rate – worked (21st, 22nd, 23rd, 24th December)
- 7.6 hours x 3 days = 22.8 hours at annual leave – not worked (29th, 30th, 31st December)
5. Paying out Christmas bonuses and cashing up leave
For businesses that pay out a bonus or cash up annual leave, Christmas would be a common time to do so.
These are usually paid as a lump sum and are considered one-off payments so it is important to make sure the correct tax is deducted.
Most payroll systems would do this for you automatically but if they don’t, you can calculate it yourself as well.
To do this, work out your staff member’s income bracket (e.g. $48,001 to $70,000) and apply the tax rate for that income bracket to the bonus using the following steps:
- Work out how much they have earned, before PAYG 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 figure.
- Check what tax bracket this figure sits in.
- Deduct the appropriate PAYG amount from the bonus.
For employees who wish to cash up annual leave, the calculation is the same as mentioned above as it is also considered a lump sum.
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