At this time of year thoughts quickly start to turn to the staff Christmas party, spending time with family, overindulging on ham on Christmas Day and long summer evenings sitting outside.

Compliance considerations are probably not top of mind, and please don’t call me the grinch, but as we head into the silly season there are a few things to keep in mind. These relate to holiday pay and the deductibility of the office Christmas party and client gifts.

Holiday Pay

Christmas is generally the most complex and confusing for holiday pay. There are not only statutory holidays to consider, but also staff may be taking a well-earned break and using their annual leave. Some questions you need to ask include:

-       How long has the employee been employed?

-       Does the employee have enough leave?

When an employee is on annual leave, you must pay them whichever is higher:

-       Their ordinary weekly pay at the time of the leave, or

-       Their average weekly earnings over the 12 months before the holiday is taken.

As payroll in general can be a minefield, to assist with this you have two options. Either look to outsource your payroll – this frees up your time and can be a cost-effective solution – or, if you would like to complete the payroll yourself, implement a payroll software.

These solutions have a number of advantages:

-       Increased accuracy and reduction of human errors

-       Automated payments and payday filing

-       Keeping up-to-date records for leave balances

-       Leave payments calculated correctly

-       Integration with accounting systems

-       Provide employee access to check payslips and leave balances with mobile apps

Christmas Functions and Client Gifts

The costs associated with holding an end of year function for staff, customers, or both will generally be deductible to the business; however, there is a catch.

Expenditure in relation to such functions will generally come within the entertainment expenditure regime. This regime limits the deduction for specific types of entertainment to 50% of the actual cost.

Some examples include:

-       Food and drink provided at the Christmas party

-       Gifts of food and drink that benefit your business and are enjoyed privately by the person who receives them i.e. if you give a bottle of wine or food hamper to

customers.

-       Supporting expenses for other entertainment that is 50% deductible, such as hire of wine glasses

And just when you think you have a handle on that, if you want to reward an employee for the good work they do and their excellent performance with a restaurant gift voucher, this cost would be 100% deductible but could be subject to the FBT regime (although depending on the value an exemption may apply).  

If you have any questions regarding what you need to consider, contact Nigel to discuss today.

Merry Christmas Everyone from Nigel and the Findex Team

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December 2022