What is an annual shutdown?

An annual shut down, basically, is the same as everyone in the organization taking leave at the same time. Shutdowns most often happen at the end of the tax year, over Christmas and New Year, hence straddling two tax years.  Some organizations use this period to perform plant maintenance, hence whilst the bulk of the staff go off on leave, there are others that remain working.

Processing Monthly pay during a shutdown

If its a monthly payroll then you only need to process the number of leave days for each employee affected.  The payment of the salary is most commonly unaffected from one month to the other.

Processing weekly/ fortnightly pay during a shutdown

With weekly/ fortnightly payrolls employees, most commonly, receive their Net Pay wage amounts for the periods of the shutdown before going on leave.  The leave is processed as 'Leave Paid in Advance' where the user enters the number of periods to be paid in advance by entering the period range.  The system then advances the calculated value of the total Net Paid amounts for the number of periods away.  This advance is then recovered in each of the payroll periods of the shutdown.  As the system goes from one period to the next in the shutdown the Net Pay is offset by the system trying to recover the amount of the advance, leaving a NIL Net Paid amount in each of the periods away.

The significant advantages of this method is:

•employees are taxed using the correct tax rates for income that is due in each of the tax years.

•the standing transactions for each employee come through into the correct period/s of the shutdown and can be paid across to third parties as would be in the ordinary course of events.

•employees are unlikely to come back to a shortfall in the amount being advanced to them before going on leave.

Tax Implication

On a weekly/ fortnightly payroll a portion of the wages paid will relate to the current tax year and the balance to the new tax year.  The advanced Net Paid amounts will be calculated using the old tax rates, but as period ends are done the recovery of the advance will be offset against the Net Paid amounts calculated using the correct tax rates for the period involved.  Due to inflation the tax in the new year is generally lower than in the previous year, therefore, the employees can expect to find that the recovery of the advance has been done leaving a small amount left over for them to enjoy on their return.

Payslips

Payslips for the period of the shutdown can be given to employees when they are available, either before going off on shutdown, or on their return.

Cash in Lieu

Some organizations use the Cash in Lieu Leave feature to pay the value of leave days due at the time of the annual shutdown.  In the last period of the year they simply pay the amount of leave days due in cash.