Closing for Christmas and New Year holidays

If your business regularly closes down once a year each year for Christmas (or another period) you will need to give employees at least 14 days’ notice in advance of the closedown. If your usual payroll payments fall during the closedown period, you will need to organise how to manage it. For instance, setting up automatic payments in your banking app.

Taking annual leave or holiday pay

Employers can require employees to use their annual leave entitlement during their closedown time. If the employee has been working for less than a year, then the employer pays holiday pay up to 8% of their gross earnings since starting employment, less any annual leave taken in advance. If there is not enough annual leave entitlement or holiday pay, then the employee can ask for annual leave in advance if the employer agrees, or have unpaid leave.

Cashing up annual leave

An employee can ask for one week of their four-week entitlement to be paid out in cash. However, an employer cannot make an employee request a pay-out. The request needs to be made in writing. If the employer considers the request in good faith and decides no, their reply must also be in writing.

Treat the cashed in annual leave as an extra pay, and calculate PAYE for lump sum payment. (See bonusses.)

Paying public holidays taken

Christmas Day and Boxing Day (25 and 26 December), New Year’s Day and the day after (1 and 2 January) are all public holidays. If any of these days fall on a weekend then they are observed on the following Monday or Tuesday, for workers who normally work on those days. For instance, if a worker normally works Monday to Friday, then their public holiday entitlements in 2022/2023 are Monday 26 December, Tuesday 27 December, Monday 2 January and Tuesday 3 January.

Employees are entitled to a day’s payment at their relevant daily pay or average daily pay, if the public holiday falls on an otherwise working day. If they don’t usually work on that day of the week then they are not entitled to be paid for the public holiday.

If a worker’s employment is terminated before the public holiday, they may still have to be paid for that day, if their annual leave and holiday pay entitlement extends to include those days.

Opening for Christmas and New Year trading

If your employee works on the public holidays or their observance days, then they are paid at least time and a half (1.5x) using relevant daily pay, for the time they work on that day. In addition, they will get an alternative holiday which is a paid day off on an otherwise working day for the employee.

If a person only works on public holidays then they don’t get the alternative holiday, just the time and a half. If a worker is eligible for penal rates then they don’t get 1.5 times on top of the penal rates.

Staff Bonusses

Whether you decide to pay a bonus as cash in hand, or by direct deposit into a worker’s bank account, you will need to put it through the payroll system, which means making PAYE and student loan deductions and calculating Kiwisaver.

As this is an extra pay, you may need to calculate PAYE and Student Loan at a higher rate than normal. This is especially true if they are crossing into a higher tax threshold. Check out IRD guidance on how to calculate the PAYE. [i]

Staff Gifts

Gifts to employees which are not cash do not have to go through the payroll. But you may need to consider if entertainment or FBT rules apply.

Entertainment

If you give food or beverage to workers that they can enjoy in their own time, then entertainment rules apply and it is only 50% deductible for income tax. Similarly if you buy them tickets to a sporting or cultural event.

Non-Entertainment Gifts

If you decide to give your workers a gift voucher, or a present like a handbag or perfume, then you can claim a deduction for income tax, Fringe Benefit Tax rules apply if you spend over $300 a quarter per employee, or over $22,500 for all employees per annum.

Conclusion

If you are using a reputed NZ payroll software, then the pay rates and deductions will be calculated for you, as long as you correctly identify whether a person worked on a public holiday or not, and whether you paid them a bonus. You will still need to sense check for errors, as they aren’t fool-proof.

If you opt to give your employees a gift or bonus, remember to consider whether entertainment or FBT rules or PAYE rules apply.

The Christmas New Year period is perhaps the most expensive time of year for your payroll. Budget ahead for this, so you are not squeezed so hard in the New Year.

-         Serena Irving



Serena Irving is a director in JDW Chartered Accountants Limited, Ellerslie, Auckland. JDW is a professional team of qualified accountants, auditors, business consultants, tax advisors, trust and business valuation specialists.

An article like this, which is general in nature, is no substitute for specific accounting and tax advice. If you want more information about the issues in this article, please contact your adviser or the author.

  [i] https://www.ird.govt.nz/employing-staff/payday-filing/non-standard-filing-of-employment-information/lump-sum-payments/calculate-paye-for-a-lump-sum-payment