December 7, 2015

4 tips to avoid Christmas payroll pitfalls

It’s nearly Christmas, which means many people can look forward to a well-earned rest.

But if you are an employer or payroll professional, Christmas and New Year brings a number of potential challenges that you need to be aware of and prepare for before you can start your Christmas break.

Here are our top 5 tips to make sure you don’t run into any payroll problems at Christmas…

1. Changes to payment dates

This year, both Christmas Day and New Year’s is on a Friday, which means that some businesses may have to bring the normal salary pay date forward by a day or two. If your business operates on a weekly payroll basis, then you might need to pay employees in advance to cover any days of business shut down over the festive period.

It is important to let your payroll team know well ahead of time what the arrangements are so they can plan and put the necessary procedures in place. As a result, your payroll processing timetable may also need to be brought forward for December in order to pay everyone on time.

2. Full Payment Submission (FPS) and Employer Payroll Summary (EPS) changes

Even if your company pay day is brought forward in December, remember that the pay date on the FPS submission should still show the normal contractual (regular) pay date.

Submission of the EPS should be as per the standard timetable for this – i.e. sent between the 20th of the current month and the 19th of the month following. HMRC may impose penalties for late or inaccurate returns.

3. Christmas bonuses and gifts

If you are considering handing out a Christmas bonus or gift to your staff, it is important to make the distinction between cash presents or physical goods.

Tax on bonuses and gifts depends on a number of factors. These include:

  • If you give cash bonuses or goods (gifts) to an employee
  • If you give goods to an employee (whether or not they can be resold for cash)
  • Whether the employee is a director and how much they earn

If you give goods that cannot be exchanged for cash to an employee who earns less than £8,500 a year, these do not have to be reported to HMRC.

Other Christmas bonuses need to be reported as follows:

Cash or cheque bonus

Cash or cheque Christmas bonuses count as earnings so they will be need to be put through payroll as normal, with PAYE tax and Class 1 NI deductions.

Goods

If you give Goods as gifts to employees, you will need to report:

  • If they can be resold for cash
  • If they are given to employees who earn more than £8,500 a year

For ‘trivial benefits’, employers still need to call the employer helpline for a decision if a certain gift can be classed as trivial and not subject to Tax and NICs. If it is classed as trivial, you don’t have to report it.

Please refer to: https://www.gov.uk/expenses-and-benefits-christmas-bonuses  for a full explanation of what needs to be done where goods are supplied.

For Third Party Gifts, which are gifts given by other than the employer of the employee (by an outside business/provider), please refer to: https://www.gov.uk/expenses-and-benefits-third-party-awards

4. Christmas working

Finally, don’t forget to make arrangements for paying such employees who work during this period and inform payroll of who these will be and when to expect payment.

There are no legal requirements around working and payment over the festive period other than those stated in an employee’s Terms and Conditions of Employment.

By John Spooner, Payroll Legislation Consultant

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