Michael finally enters in his own Santa suit, in character, and when Pam points out that Phyllis has it covered, he demands, "What the hell is going on?"
In Michael's office, he yells at Jim to de-Santa Phyllis, which Jim refuses to do. From behind his very distracting beard, Michael THs some nonsense about how Santa is in Russia, concluding, "It's a good thing Russia doesn't exist any more."
Michael hauls his guest chair out into the bullpen to disrupt Ryan's photo sessions with people sitting on Phyllis's lap, calling her "Tranny Claus" and inviting them to sit on the lap of someone who isn't pretending to be a man. "Sit down on my lap and there will be no doubt. No, it's not, like, penis-wise." The first one to take him up on it is Kevin, because Phyllis said he's too big. Kevin takes his sweet time on Michael's lap and we can even hear the chair creaking under them until Michael kicks him off. "I didn't even get to tell you what I want yet," Kevin complains. "Okay, You know what you get? You get a thousand helium balloons attached to you so Santa doesn't have to go through this again." Kevin: "Awesome!"
Phyllis enters Jim's office, and Jim assures her he's on her side. "Don't make me get Bob involved," Phyllis threatens. Jim wonders what Bob would do, and Phyllis scampers away, having said too much.
Erin asks Andy if he's the one sending the gifts, and he admits it, although he's laughing the whole time so she'll think he's kidding. It's just about as awkward as when he asked her out. Except that at least this time he doesn't back away from admitting it... quite. Baby steps, I guess.
While Pam watches from the warehouse door, Oscar goes down to deliver Matt's check, and offers to wait when Darryl says he's out. "Matt's a pretty good-lookin' dude, don't you think?" Darryl asks Oscar, which gets rid of him in a hurry.
Up in the bullpen, Michael tries to pull Ryan away from his camera tripod to be his next lap-guest until Jim intervenes. "You can't yell out, 'I need this, I need this' as you pin down an employee on your lap," he says. Right, Jim. Point out to me where in the employee manual it says that. Michael offers to call for a vote on who wants Phyllis as Santa, and of course the vote is in favor of Phyllis, 30 million to Dwight. "Want some punch?" Jim asks Michael, so Michael stuffs his Santa hat in the punchbowl. That's not very jolly of him at all.