The Complete Guide to Christmas Payroll

The festive season is just around the corner. 

It’s a busy time for most. So when it comes to Christmas payroll, many companies will choose to run theirs a little early due to the high number of bank holidays. It’s also a nice gesture for employees, as they can get paid before Christmas. 

So what are the main things to consider when running payroll in December? This may come as a surprise, but there’s much more to consider beyond simply paying employees early.

From Christmas payday to annual leave carryover and holiday bonuses, December can be a highly unusual month for those involved in payroll. So, having a good system in place to navigate this time of year is essential.

Regardless of how you run your payroll, our Christmas payroll guide and checklist are an excellent place to start.  Here are all the things you need to do and be mindful of when running December payroll.

What are typical Christmas payroll dates?

Unfortunately, this is one of those ‘there’s no right or wrong answer’ types of questions. When you decide to pay your employees at Christmas is entirely up to your company. And while a lot of companies will choose to pay their employees early (more on this later), there are no laws or contractual stipulations to say that you must. 

'No matter when you decide to pay your employees, bear in mind that you should ensure your regular pay date is reported correctly to HMRC. Employees who receive universal credit could be impacted if the usual pay date is changed via your FPS submission. Although you pay your employees early, you will have until your normal payday to submit your FPS to HMRC.

For reference, here are how this year’s bank holidays fall:

Christmas bank holidays 2023

Additionally, it’s worth noting that the last working day of the month is the 30th of December. If you’re paying employees via BACS, this means you’ll need to make payments to their bank accounts on the 28th of December so these are deposited in time. That’s a quick turn around, especially after both Christmas bank holidays, so you’ll want to prepare for this in advance.

Should you pay employees early at Christmas?

One of the biggest questions we get around Christmas payroll is whether to pay your employees early (or not). 

Again, this depends on you as a company, though most companies choose to pay their employees early, the main reason being that payday often falls on a bank holiday. However, paying employees on time, rather than early, may make more sense for other companies so they don’t have to advance wages in January (for instance, in the case of employees living paycheck to paycheck). Of course, it's essential to ensure your employees aren't paid late, so it makes sense to pay them earlier by a day or two. 

For businesses operating on a weekly payroll basis, this could look like paying employees in advance to cover any days when you might be closed over Christmas.

Some things to keep in mind when paying employees early in December:

FPS and EPS submissions

We touched on this earlier. Your Full Payment Submissions (FPS) and Employer Payment Summary (EPS) must still be sent on the usual dates. So if you move your pay date forward, your FPS date will still be as contractually stated, and you can submit your FPS early, or you can wait for the usual payday. 

For example, if your employees are usually paid on 30th December but will now get paid on 20th December, you have until 30th December to report this to HMRC.

Similarly, your EPS submission should happen as per the regular timetable - that is sent between the 20th of the current month and the 19th of the following one. Remember that you can incur hefty HMRC fines if your returns are late or incorrect. 

Universal Credit

Keeping to regular reporting dates with EPS and FPS submissions is also a good idea, given that it protects employees on Universal Credit. 

Bacs files & payments 

If you’re pushing your payday earlier, remember that you’ll need to generate your BACS file ahead of time. It will need to be dated two bankings days before pay day. While a payroll software like PayFit will always use the correct BACS dates, it’s good to get in the habit of double checking these dates before uploading. If either date is wrong, employees will end up being paid late.

Christmas Payroll Prep Checklist 

If you’re already making a list (and checking it twice), you’re two steps ahead of us! Here are some essential tasks to check off your list before running your December payroll.

Agree on payment dates and payroll task deadlines

If you’re planning on paying your employees early, ensure everyone is on the same page. If both the Finance and HR team share payroll, then make sure there's a proper communication channel in place and that both teams are aware of their responsibilities and deadlines to meet. 

It's worth notifying key stakeholders early about the different arrangements for December so everyone can plan ahead of time. It may be that your payroll process timetable needs to be brought forward so people are paid earlier and, at a minimum, on time. 

Notify employees of Annual Leave carryover

While annual leave can be carried over, you should encourage all employees to take their annual leave before the end of the year.  If employees are required to take all their leave before the end of the year, you'll need to give double the notice length, so they have time to prepare.

There is, of course, payment in lieu of holiday (or PILOH) but this should only be applied in the case of an employee who is leaving. Otherwise employees have no right to PILOH for holidays not taken during the year. Overall, it’s better (and much simpler) to encourage employees to take their annual leave during the year when possible or otherwise carry it forward.

Review tax rules around Christmas bonuses, gifts & vouchers 

Christmas is, after all, the season of giving. If you’re planning on giving your employees a Christmas present, you can do so in many different ways: as a gift, voucher or bonus. 

Christmas bonuses in the form of money are subject to tax and National Insurance through payroll. That includes gifts and vouchers if they are not considered ‘trivial’ - these, too, may incur tax and National Insurance obligations.

When is a gift of a voucher considered trivial?

In order for vouchers or gifts to be trivial, they need to be all of the following:

• £50 or less

• Isn’t cash or a cash voucher, or in other words, can’t be exchanged for cash

• Isn’t work or performance-related

• Isn’t part of the employee’s contract or terms and conditions

Any goods given to an employee earning less than £8,500 a year that cannot be exchanged for cash don’t need to be reported to HMRC.

Do bonuses have to go through payroll?

When you pay out any bonus to an employee, it will need to go through your payroll. That’s because bonuses are considered taxable income, so a portion will need to be deducted as tax and NI. 

What’s the tax rate for bonuses?

This will be the same as the employee’s income tax rate, bar a few exceptional circumstances.

Be clear on Working over Christmas policy

Lastly, if employees work over Christmas, make sure your payroll team knows who they are and when they expect payment. 

Do companies have to pay extra for working on Christmas Day?

Employees don’t have a statutory right to extra pay for working bank holidays, and this includes Christmas. So while employees may have questions about time and a half or double time, any right to extra pay depends on what’s stated in the employment contract. 

Finally a note on Christmas parties…

While not strictly payroll-related, company Christmas parties are a common social event at this time of year. And these, too, can have tax and National Insurance implications. So before you start the festivities, it’s essential to know what is and isn’t exempt from tax and National Insurance.

For a party or event to be exempt from tax and National Insurance, it must be:

• Available to all employees of the company

• Be annual

• Cost less than £150 per head

If your party doesn’t meet these requirements, you could choose to cover the employee tax obligations through a PSA. Doing so means your employees don’t have to pay additional tax towards the cost of a Christmas party at the end of the tax year. 

We hope you found this information helpful and that your December payroll runs smoothly!