December 20, 2021
Christmas payroll issues: Why is payroll processing in December particularly challenging?
Prevent payroll problems before the holidays with these 5 tips
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Who doesn’t look forward to spending a few quiet days surrounded by family and friends over the holidays and New Year’s? This may seem like a rhetorical question, but there actually is a group of employees who can’t enjoy the pre-festive banter with their colleagues in the run-up to the celebrations: your payroll team.
During the festive season, many employees are on holidays and most businesses decide to shut down completely or run with only a skeleton crew. The problem is, however, that the continuity of some business functions needs to be ensured, above all payroll. With the holidays and New Year’s just around the corner, your employees are probably more desperate for their paychecks than at any other time of the year, given that there are so many presents to buy and bills to pay.
In the last weeks of the year, the pressure is extraordinarily high on payroll teams, especially as the approaching holidays mean shorter processing times on top of everything else. Without careful preparation, your December payroll run can easily turn into a real nightmare. We tell you what makes the final payroll run of the year so challenging and what you can do to prepare your payroll team for the busiest period of the year and avoid any potential Christmas* payroll pitfalls.
Ask any payroll professional what the most challenging payroll month is in their opinion, and they will most likely say “December”. While most employees don’t have any other concern than wrapping up for the year, the payroll department is running at full steam. There are several reasons for that.
First of all, banks are closed over the holidays which means that payments will have to be issued earlier than usual to make sure employees receive their money on time. Having said that, many companies decide to deliberately move their pay date forward in December - either in favor of the employees so they have more money to spend on presents or because the business shuts down for the festive period. The impact this has on payroll is significant: Processing times for payroll in December are shorter which results in higher pressure to get everything done.
Second, the fact that many employees and managers decide to take days off in the weeks before the end of the year means that it is harder than usual to collect the necessary payroll information from all team members. Having to track down colleagues who are already on leave and receiving the necessary information last minute increases the workload significantly. Even more so, if some employees have to work during the holidays to keep the wheels turning, as this means having to plan ahead and make sure their working hours are remunerated correctly since pay rates for work on public holidays are higher in many countries.
Third, it is common for employers to reward their teams with gifts and bonuses at the end of the year to express their gratitude. While this is a nice and highly appreciated gesture, it also means more work for the payroll department. That is because these additional pay elements have to be considered in the December payroll run and tax and social security contributions have to be adjusted accordingly. What’s more, different types of gifts and bonuses are subject to different income and social tax rates. This gets even more complicated when you have a globally distributed team and need to comply with different laws in each jurisdiction on whether and when to pay a 13th salary. For example, employers in Spain are obliged to pay employees a 13th and 14th month salary, one of which must be paid before the holidays in December.
Last but not least, even if pay dates are shifted, the reporting to the tax and social security authorities still has to be accurate and, in most cases, done according to the contractual pay period. For instance, the HM Revenue & Customs department advises employers in the UK to report PAYE information in real time and indicate the normal payday as the payment date despite payments being made early before the holidays. In other words: Even if you pay your employees earlier, the tax and social security reports you file must still cover the whole pay period as it is stated in the employment contract. Therefore, the calculations for the rest of the pay period must be made in advance.
In a nutshell: In the run-up to the holiday season, payroll teams have less time to conclude the payroll run while simultaneously having to tackle a bigger workload and face the challenge of gathering everyone’s payroll information on time.
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Given these additional strains on payroll departments, it’s not hard to imagine that chances are high for the final payroll run of the year to turn into a real nightmare. Luckily, there are a few easy steps you can take to prevent this.
There is one crucial fact that makes the payroll madness in December a lot easier to manage than the impact of COVID-19 on payroll: You know that the holiday period is coming and can therefore prepare for it. Don’t let the approaching holidays take you and your team by surprise and start talking about the payroll schedule for December early (best in October) and have your payroll schedule for Christmas ready by November.
If your payroll team knows the changed schedule for December, that’s great. However, this won’t be of much help if the rest of your employees are unaware of the payroll timetable before the holidays. Make sure to let the entire team know that they have to submit their payroll information (working hours, leave days taken etc.) earlier than usual. This includes management. Keeping your staff in the loop is crucial.
As mentioned before, gifts and bonuses to employees have very specific tax and reporting implications which may change from one year to the next. Make sure your team keeps up to date with regulatory changes and knows the rules to ensure a smooth, error-free payroll run.
If you need to have a few employees on site during the holidays, you should finalize the work schedule well before everyone goes on holiday and inform your payroll team about who will be working. In this way, the payroll department can make sure that these employees will receive their pay accordingly.
The Christmas payroll run is challenging for businesses of any size, but even more so for multinational organizations with a global team based in different countries all over the world. Instead of having to worry about coordinating early paydays and bank closures across multiple geographies, you can simply outsource your global payroll processes to local payroll vendors.
At Lano, we work with a network of top tier payroll providers who can help you set up and run your local payroll in over 130 countries. Get in touch with us to find the right payroll partner for your business. In the meantime: Have a wonderful holiday season and a Happy New Year!
* Just a quick note on terminology: The term “Christmas payroll” is used as a simplification to refer to the last payroll run of the year only. It does not carry any discriminatory intent against other religious holidays taking place at the end of the year.
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