The (payroll) nightmare before Christmas

01 December 2020

Lora Murphy ACIPP, CIPP policy and research officer, reveals the processing challenges payroll faces in December

Millions of employees appreciate the additional time off that many employers grant over the festive period and are welcoming of the earlier December pay date which a lot of businesses offer. In addition, some employers may want to express their thanks and spread goodwill to their staff by providing gifts or vouchers or hosting a Christmas party.

For those working within the payroll department, however, there are additional concerns beyond what outfit to wear to the Christmas ‘do’ or what to do with those extra annual leave days. It is generally accepted that December is a nightmarish month to be working as a payroll professional.

To find out what are the biggest challenges in payroll departments ahead of Christmas, the CIPP’s policy and research team posted a Quick Poll question. The results highlight that the shorter processing month provided the most significant challenge, commanding 83% of responses. This was followed by issues in obtaining additional information from different departments, which 7% of respondents confirmed was the most challenging aspect of the December payroll. One in twenty (5%) stated that the additional pay elements to be considered during the payroll period for Christmas, such as a Christmas bonus or gifts, and the associated tax and National Insurance contributions (NICs) implications, caused the most disruption. Real time information (RTI) considerations were cited by 4% of respondents; and 1% confirmed that something else altogether caused them and their team the biggest headache over the festive period. All these are discussed below.

Shorter processing month
Payroll professionals are extremely busy individuals, consistently working to deadlines and incorporating whatever pay elements they are required to, in order to ensure that employees are paid, both accurately and on time for each pay period. There are many businesses that actually close down over the Christmas period, or that do not operate on bank holiday dates. Additionally, a lot of businesses shuffle the December pay date forward, so that employees have access to extra money, whether for gifts or for celebrating over the festive period or indeed for both!

Payroll teams will have just as much information to enter into the payroll system as in any other pay period, and potentially more than usual if the business is offering gifts or putting on events for staff; and, of course, they have a shorter timeframe in which to action it all. It quickly becomes easy to see why payroll processing in December can be a period of such stress for those involved, particularly as many companies will not offer additional resource in payroll departments to account for the shorter month or any additional work that needs to be completed.

Take the example of an employer who ordinarily pays their staff on 25th of the month – which this year falls on Christmas day. In this example, the employer opts to pay their staff on the 21st of the month. As payments are submitted by BACS, which takes two working days from the date the payment is sent to clear into employee bank accounts, the payroll department would need to finalise payroll by the 17th at the latest, as the 19th and 20th are weekend dates. This removes a significant chunk of time for the payroll team to complete all of their tasks.

Where pay dates are brought forward, there are steps that can be taken to ensure that payroll processing runs as smoothly as possible. Annual processing schedules should include the impact of Christmas so that clients and colleagues are aware of earlier deadlines.

Communications can be circulated nearer the time such as messages on payslips or reminders circulated in newsletters and communications from the payroll team to ensure the timely flow of information through to payroll for December.

RTI considerations
Earlier pay dates have RTI implications for payroll departments to consider. Back in December 2018, HM Revenue & Customs (HMRC) wrote to employers to advise of a temporary easement on reporting PAYE (pay as you earn) information in real time. In the December 2019 issue of the Employer Bulletin (http://ow.ly/vFri30rgjkE), HMRC confirmed that this easement would be made permanent.

Any employers paying early over the Christmas period must ensure that the contractual pay date is reported as the payment date in the full payment submission return, and that the return is submitted on or before that date. This is primarily linked to universal credit claims and protecting employee eligibility and entitlements. This has often been cited as a cause of confusion within payroll departments in the month of December, so teams should ensure that they are aware of what the rules are, and also what the effect of reporting incorrectly could be on certain members of staff, who otherwise may see the payment of their state benefits distorted due to this error.

Obtaining information from other departments
Payroll teams will receive criticism if employee pay is incorrect. There are many instances, however, where pay has been processed incorrectly due to incorrect or incomplete information being submitted by managers or other supervisors from different departments e.g. bonuses and overtime.

When considering this, alongside the fact that many people opt to take annual leave in December, action is needed to ensure accurate and timely information is received.

Additional pay elements
Businesses may choose to offer gifts to their employees or to host a Christmas party in December. Whilst applauded, it can create additional workload, not just for processing but also because each different element will have associated tax and NICs implications, which need to be observed and implemented correctly to avoid penalties and fines.

This element of processing payroll in December emphasises once again the importance of planning and preparation. If payroll departments have made colleagues in the wider business aware of changes to schedules and the importance of submitting information on time, they are more likely to make additional effort to get data across to the team, accurately and within the specified timeframe.

Where extra pay elements need to be considered in December, communication remains key so that other teams, responsible for organising annual events, for example, send all relevant information to the payroll department, ensuring that nothing slips through the net.

Other
The 1% of ‘other’ responses to the Quick Poll included the following.

A member, who processes a weekly payroll of approximately 400 staff, stated that “although there’s no shut down over Christmas, getting pay information in time for paying on a Friday each week is particularly hard in December, when managers seem to take an increased amount of annual leave. This, when coupled with the three bank holidays, results in increased stress levels in the payroll department.”

Another member confirmed that “they also have to deal with applications for benefit renewals, which take effect from 1 January”.

It is easy to see why payroll professionals are probably the last to enjoy the festive joy during December.

This year, more than any previous year, it is vital for everybody to get an opportunity to relax and unwind, and maybe indulge in a little too much turkey and wine. So, as we race towards the final pay run of 2020, I wish you a merry festive season and a happy and healthy 2021.