There are three types of taxes that are paid to the IRD: PAYE, Tax on schedular payments and GST. ACC levies are also collected by the IRD on behalf of the Accident Compensation Corporation. The IRD also collects both the employee and the resultant employer contributions to the Kiwisaver Scheme.
PAYE – ‘pay as you earn’
There is no requirement that your organisation use an automated payroll system; however you may find that programmes such as ACE, MYOB, Datacom etc may make the task a lot easier and less time consuming. Thankyou Payroll offers a free payroll solution for registered charities in Aotearoa New Zealand.
The employer collects PAYE on behalf of IRD by deducting this tax from employee salaries or wages. The PAYE calculator at www.ird.govt.nz calculates how much to deduct from each employee’s salary or wages. The employer will need to know the employee’s tax code in order to calculate this. The employer then sends the payment to IRD by the 20th of each month.
The employer must keep full and accurate records of all salaries and wages paid and the amounts deducted as PAYE (wages book or computer records) for at least seven years.
ACC and any student loan or child support deductions are paid with PAYE and any deductions should be listed on the employee’s payslip.
There is no legal requirement (unless stated in the employment contract) for an employer to provide a PAYE staff member with a payslip. However the information that would be contained in a payslip must be recorded in the employer’s wage and time records. It is a good idea to provide payslips as this stops confusion occurring and avoids creating extra paperwork in future.
A payslip should include:
- total hours worked in that period
- total gross income from that period
- total net income deposited into the employee’s bank account
- any deductions made from the gross income, such as PAYE tax, student loan repayments, Kiwisaver etc
- the amount of sick leave and holiday pay remaining
Tax on schedular payments
Schedular payments are payments made to contractors. Subject to some exemptions, employers must deduct tax on schedular payments from contractors performing activities outlined in Schedule 4 of the Income Tax Act 2007. There are a range of activities that are liable for tax on schedular payments. The tax rate differs according to the activity. For more information on rates, refer to Schedule 4 of the Income Tax Act 2007. Tax on scheduler deductions is included with PAYE deductions on the form sent to the IRD.
GST – Goods and services tax
GST is a tax on most goods and services in New Zealand (including imported goods). You must register for GST if your income (sales, service provided) exceeded $60,000 for the last 12 months, or is expected to go over $60,000 in the next 12 months. If you are required to register for GST, you must apply within 21 days of becoming liable. Interest, sales of donated goods sold by a non-profit body, donations (no reciprocal benefit), and financial services are exempt.
The current rate of GST is 15%. If registered, you charge 15% GST on all taxable (not exempt) sales and income. You can claim GST for purchases and expenses for which you hold a valid tax invoice.
GST returns are due to be filed on the 28th of the month following the end of your GST period. Subject to certain eligibility requirements, you may apply for a monthly, two-monthly or a six-monthly filing period.
ACC – Accident Compensation Corporation
Every employee is required to make payments towards ACC to cover the cost of work and non-work related injuries. These payments are deducted from an employee’s wages by their employer.
Employers must automatically enrol all new employees who are eligible to join Kiwisaver. Employers contribute to 3% of the employee’s pay. Employers must give the Kiwisaver employee information pack to all new employees who qualify for automatic enrolment and to all existing employees who wish to opt into Kiwisaver. Employers must make employer contributions as required and claim the eligible employer tax credit. Both the employee and employer Kiwisaver contributions are paid to IRD at the same time and on the same form as PAYE.