It's hard to believe another year is nearly upon us. It’s not long now before we can all take a much-earned break to eat good food in the sun while spending quality time with our loved ones.
However, this time of year can also be quite stressful, particularly if you’re responsible for paying employees over the Christmas break.
Payroll is complex at the best of times, but it’s even more so when you have to factor in things like annual leave and public holidays.
That’s why it’s important you’re prepared, to make sure your employees’ pay gets processed on time, and everyone gets paid correctly.
To help you do this, I’ve put together some tips so you can make sure everything’s been thought about and you’re not left scrambling at the last minute.
Tip #1 – Understand what’s required
Taking time before the busy period to properly plan and understand what will be required will mean less stress and less chance of making errors that could cause problems for you or your employees.
Here are some key questions you might want to consider:
● Will you have new employees for the busy period?
● Does your business have a closedown period? If so, how will leave be paid?
● Are some employees taking leave during the Christmas and New Year period?
● Do you have employees who will need to be paid for the public holidays?
● Will payroll still be able to be processed on your regular Pay Day? Note that bank closures may affect this.
Tip #2 – Check your employees’ leave balances
Christmas is a time when many people want to take holidays, and your employees may already be asking how much leave will be available for them to take.
To make sure you’re prepared for these questions, it’s a good idea to sit down a couple of months out from Christmas and calculate an approximation of each employee's leave balance.
Here is an easy calculation to help you:
For an employee who receives four weeks entitlement each year, a quick calculation means they will accrue 0.077 of a week for each week worked.
[number of weeks entitlement] / [52 weeks] = [weekly accrual] 0.077
It’s also a good time to reconcile leave balances in your software. Has all leave taken been recorded, and has the leave been deducted correctly?
Checking your payroll leave settings is also a good idea if there have been any changes to your employees' work patterns.
Tip #3 – Understand how to pay your employees for Public Holidays
The rules around what to pay employees for Public Holidays can be confusing, but it’s important that you understand your obligations as an employer and that your employees are paid for any public holidays they are entitled to.
An excellent resource for understanding your responsibilities is Employment New Zealand, and I’ve also written a guide to paying public holidays.
Or, if you want to test your public holiday knowledge, check out my quiz.
Tip #4 – Check any bonuses are paid correctly
There are a couple of things to be aware of if you choose to pay your employee a bonus.
Firstly, adding extra payments to a pay means tax can be higher. This is because tax is calculated using pay as you earn. These payments can be taxed using IRD’s lump sum (also known as extra pay) calculation. Check out Business Govt website for more information. You may need to contact your software provider to understand how this is managed.
Secondly, it’s important to note that paying bonuses may affect your employees’ future leave payments. If annual leave is taken shortly after paying bonuses, these payments will be paid at a higher rate than their standard rate. You can only exclude truly discretionary (having no expectation or agreement) payments from gross earnings when calculating leave payments.
Tip #5 – Make sure you communicate any closedown period
Communicating to your employees if you have an annual closedown is important. You are required to give them 14 days' notice of a closedown period.
It’s also important to consider (and communicate) how your employees will get paid when you closedown?
Employees who are entitled to annual holidays at the time of closedown will need to use any annual leave they have available. For those who do not have enough leave to cover the closedown, an agreement will need to be made to take leave in advance or leave without pay.
Employees who have not completed 12 months of employment must be paid 8% of their gross earnings since their start date. Their leave anniversary date is then changed to the date of closedown (or just before if you don't want it to fall on a different date each year)
Note: You are still required to pay for any public holidays during this period for employees who typically work on the days the public holiday falls.
I know this time of year is busy, and there are lots of things to consider when it comes to your payroll.
If you need any assistance, please get in touch so we can see if I can help in any way.
