Payroll at Christmas

Many of us will have already begun our preparations for the festive period, whether decorating our homes or making a start on the Christmas dinner trimmings. Something that isn't always so well prepared, though, is the payroll.

Those of us in the payroll industry will know that preparing your payroll for Christmas is just as vital for success as wrapping the presents or roasting the turkey! December is one of the busiest times of the year for payroll processors, so what can you do to ensure that your organisation is prepared? Our experts have prepared their list of things to consider to keep your payroll running smoothly throughout the season.

Changing pay dates

Many businesses will change their pay dates over the festive period, which could be due to a festive close-down or even a choice to pay staff early, ensuring they can get last-minute Christmas shopping done. This change, however, usually only applies to monthly paid employees.

Since your payroll processing timetable will be brought forward, you need to start the process sooner. You will also need to communicate the new pay date to employees, in addition to any changes to deadlines for things like expenses.

For Dataplan clients, your payroll processing team will work with you to ensure the new pay date is achievable. For clients using our ePayslip app, the COMMUNICATE feature can handle the communication to your employees.

The impact of changing pay dates

While bringing the pay date forward may accommodate a Christmas shutdown, it is important to note that there can be an additional impact on your employees. Firstly, it will create a longer gap between the December and January pay dates, which can impact your employee's finances.

As an employer, you can make financial wellbeing a part of your benefits package and access materials to help employees manage their finances during this long month.

Additionally, if an employee is due to go on maternity leave the following year, a change to the December pay date may affect their Statutory Maternity Pay (SMP). Since the SMP rate is calculated based on their average earnings over at least eight weeks up to and including the last payday before the end of their qualifying week, it could inflate their SMP rate.

Therefore, it is best to double-check your calculations before they go on maternity leave. For Dataplan clients, if you are worried about this impacting any of your employees, please speak with your payroll processing team, who will be able to confirm the calculations are correct for you.

Bonuses and gifts

Many employers choose to thank their employees for a year of hard work with a bonus or gift. Whilst this is a lovely gesture, it is not without its considerations. For example, depending on the type of bonus, it may be reportable to HMRC and liable for tax and NI deductions.

Trivial benefits are not liable for tax, but they must:

  • Cost the organisation £50 or less to provide
  • Not be cash or a cash voucher
  • Not be a reward for work or performance
  • Not be in the terms of their contract

Cash and vouchers

For cash bonuses or vouchers with a choice of spending options, they are classed as earnings. Therefore, they need to be added to the employees' other earnings. PAYE tax and Class 1 NI should be deducted through the payroll, and then you should report the bonus amount to the employee via their payslip.

Physical goods

Physical goods that do not come under the class of trivial benefits must be reported on form P11D, and Class 1A National Insurance must be paid on the value of the goods. Where there is no resale value, the value should be based on the cost to the organisation. Where there is a resale value, whichever amount is higher should be used.


Where meals cost the organisation less than £50 per person, there is no need to report or pay extra costs. However, the event should be listed as a 'festive celebration' and not a reward so that your staff do not end up paying tax.

Christmas working hours

Whilst many businesses will be shutting over Christmas, many others will remain open or even have overtime hours on offer; this poses a couple of important points to consider for your payroll. Firstly, there are three bank holidays over the festive period: Christmas Day, Boxing Day, and New Year's Day.

The following weekdays will be replacements where bank holidays fall on a weekend. There are no strict legal requirements regarding working and pay over the festive period, but there may be stipulations within your employees' contracts. Where employees are working over Christmas, the payroll team will need to be informed of the correct pay rate.

For overtime, however, there is no legal obligation to pay for extra working hours as long as it is not stipulated in their contract and their pay rate does not fall below National Minimum Wage. Therefore, overtime hours and rates should be recorded and sent to the payroll team in advance of the cut-off date.

Absences and holidays

Another challenge presented over the festive period is absence and holidays. Absences tend to be higher during the winter months, with the seasonal flu doing the rounds. It is vital that your payroll team checks that employees who are absent because of sickness qualify for Statutory Sick Pay (SSP).

Equally, care must be taken when calculating holiday pay considering that there may be other factors such as overtime and a Christmas bonus at play.

Written by Rachel Cooke
Published on December 9, 2021

Dataplan are one of the UK’s leading providers of specialist payroll and associated services.

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