If you have staff, managing the payroll and staying compliant with the Inland Revenue Department (IRD) can be complex and confusing. But it doesn’t need to be. Understanding your options - and your obligations - is key. Here are some tips to help make running your payroll a little easier.
When and how to pay your staff
It’s up to you.
You can choose whether you want to pay your staff weekly, fortnightly or monthly. You can also choose how you want to make your regular payroll payments - there are a number of options:
Into the employee’s nominated bank account. This can be done through:
Manual payments to each employee directly through your bank (e.g. internet banking)
Use a third party payroll solution (e.g. SmartPayroll) to calculate and make the payroll payments automatically
Some versions of accounting software (e.g. MYOB or Xero) can make payroll payments for you
Whatever you choose, you will need to make the pay frequency and the day/date of payment clear to your employees upfront; this usually forms part of their employment contract with you.
If you wish to make changes to the way, or the frequency in which you pay an employee, you’ll need to obtain their written consent first.
What are your obligations?
There are many areas of compliance that you need to be aware of when employing and paying staff, such as:
Pay As You Earn (PAYE) tax
All employees have to pay PAYE tax. As an employer, you need to deduct the PAYE from your employee’s pay and pay it to the IRD. The amount of PAYE will differ between employees based on their tax code. For more information on PAYE and how to calculate it, see the PAYE section on the IRD website.
Some online payroll solutions such as SmartPayroll can calculate PAYE and pay it to the IRD automatically with each payrun.
KiwiSaver, superannuation scheme contributions and other mandatory payments
You may be required to make additional payments to the IRD on behalf of your employees. This can be for a number of things, such as student loans, child support, or court fines. For more information, see the IRD website.
If you have seasonal peaks that require staff to work longer than usual hours (such as farming and agricultural businesses), you will need to ensure that their equivalent hourly rate does not drop below minimum wage. Even if over the course of a year the equivalent hourly rate balances out to be over minimum wage, you are still in breach of your obligations as an employer if the rate drops below minimum wage at any time. Some payroll solutions (such as SmartPayroll) can alert you if a staff member’s hourly rate has dropped below minimum wage.
Fringe benefit tax
If you provide additional benefits to your employees, you may need to pay tax on the cost of these. For more information see the IRD website.
Commission and/or bonus payments
If you pay your staff commission or bonus payments, you will need to factor in how these are calculated, and how you calculate PAYE taxes, employer superannuation contributions and ACC levies. For more information see the sections on bonusesand commissionson the IRD website.
Managing leave and holiday entitlements
Every employee is entitled to at least four weeks’ annual holiday after the first year of employment. In addition to annual leave, employees are also entitled to sick leave, bereavement leave and parental leave, as well as public holiday entitlements
Leave is usually paid when the normal pay is processed, however employees can request to have leave paid out in a lump sum value at the commencement of the leave. You’ll need to ensure that when an employee is on leave, you pay them correctly, and also continue to accrue their leave entitlements during this time. For more information on leave entitlements, see the Leave and Holidays section on the Employment New Zealand website.
When a staff member leaves, you will also need to calculate their final termination pay. This final pay will include their salary or wage payments (up until the date that they leave), plus any leave owing to them.
All records of PAYE deductions must be kept for 7 years. To find out more about what records must be kept, see the list on the IRD website.
Other things to keep in mind
Remember that if you’re going on holiday (or if whoever manages your payroll is going on holiday) over the time that a payroll would normally occur, you’ll need to ensure that you have a contingency plan in place to make your payroll payments. Some payroll solutions have leave settings that can manage these for you while you’re away.
Ensure that you allow enough time to make payments (e.g. before cut off time) and check there’s sufficient funds in your account.
Plan ahead around public holidays - you may need to complete your payroll early because payments won't be processed on public holidays.
There are a number of payroll systems available which can automate many parts of the process and help make payroll management easier. If you’re wondering whether these could work for you, you may want to check out SmartPayroll’s special 6 month free trial for ANZ customersdisclaimer.
This material is provided as a complimentary service of ANZ Bank New Zealand Limited ("bank"). It is prepared based on information and sources the bank believes to be reliable. It is subject to change and is not a substitute for commercial judgement or professional advice, which should be sought prior to acting in reliance on it. To the extent permitted by law the bank disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to the material.
This material is for information purposes only. Its content is intended to be of a general nature, does not take into account your financial situation or goals, and is not a personalised financial adviser service under the Financial Advisers Act 2008. It is recommended you seek advice from a financial adviser which takes into account your individual circumstances before you acquire a financial product. If you wish to consult an ANZ Business Specialist, please contact us on 0800 269 249.
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