Obligations of employers
Employers are responsible for making various types of deductions from payments to people working for them.
Some areas that may concern you as an employer include:
- New employers.
If you have anyone working for you, or you intend on employing someone, then you must register as an employer. As an employer you will be responsible for making deductions from payments you make to them, as well as giving information to Inland Revenue.
- Types of employees.
For tax and accident compensation purposes, it is very important that you are sure of how to classify the people who work for you. That is, are they employees or self-employed?
- Deductions from employee wages.
As an employer you must make the correct PAYE (pay as you earn) deductions from your employees’ earnings using the appropriate tax code, meet your filing and payment obligations with regard to PAYE, pay any liable fringe benefit tax (FBT) and specified superannuation contribution withholding tax (SSCWT). Learn about other types of employee deductions and your obligations.
- Filing your employer schedule.
As an employer you are required to inform and pay IRD all the deductions you make from your employees’ wages by the due date.
- Payments to employees.
Employers may make other payments to or on behalf of workers, as well as salaries or wages. Learn about tax deductions for these types of payments including: lump sum or extra emolument payments; bonuses; holiday pay and more.
- Paying deductions.
You must make payments to Inland Revenue for any deductions.
- Records you should keep.
It is your responsibility to keep PAYE related records for 7 years. Know about the records that must be kept and how to do it.
- Reporting changes in your status as an employer.
As an employer your circumstances may change. An employee may stop working for you or you may stop providing fringe benefits. Learn what you need to do when there is a change in your status as an employer.
- Failing to meet your obligations.
If you fail to meet any of your obligations as an employer you may be liable to pay penalties and interest. Know about the penalties that you may be liable for, and your repayment options should you owe money to the IRD.
- Disputing an assessment.
If you disagree with how IRD have assessed your tax you can dispute it. There is a dispute process to follow.
Summary of what to do as an employer
Here is a summary of the main things you will have to do as an employer.
- Make sure new employees fill in a Tax code declaration (IR330), which will tell you the tax code to use and the rate of tax to take out of their wages. If any employees don’t fill in an IR330, you must deduct tax from their wages at a higher rate (called the no-declaration rate).
- Deduct PAYE from your employees’ wages, and pay it to IRD either once or twice a month, depending on the total amount of wages you pay. PAYE includes the ACC earners’ levy, to cover the cost of employees’ non-work injuries.
- Complete an Employer deduction (IR345) or (IR346) form and send to IRD with your payment by the due date. If you’re unsure whether to use an IR345 or an IR346 contact IRD on 0800 377 772.
- Complete an Employer monthly schedule (IR348) with the details of each employee’s deductions.
- Pay fringe benefit tax on any fringe benefits (perks) you give to your employees.
- Deduct child support payments from employees’ wages if required.
- Deduct student loan repayments from employees’ wages if required.
What do employers need to do each payday?
It is a good idea to record wage details in a specially designed Wage book (a range of which is available from stationery shops). Noting employees’ wage details on a cheque butt is not sufficient information or record.
Each payday you need to record wage details for each employee.
You need to show:
- the employee’s total gross earnings (that is, the amount before any deductions are made), including taxable allowances
- the amount of PAYE deductions
- any child support deductions
- any student loan deductions
- non-taxable allowances
- the net wage
Summarise the details for each employee at the end of each deduction payment period. This will be either twice-monthly or monthly, depending on whether you are a large or small employer.
Employers failure to meet tax obligations
If you fail to meet any of your obligations as an employer you may be liable to pay penalties and interest. Know about the penalties that you may be liable for, and your repayment options should you owe IRD money.
- Shortfall penalties.
Shortfall penalties apply to certain offences, including failing to deduct PAYE or failing to pay PAYE deductions to Inland Revenue.
- Late payment penalties.
A payment is late if it is posted or delivered to Inland Revenue after the due date. Penalties are not charged on unpaid amounts less than $100.
- Late filing and non-electronic filing penalties.
By law you must file your tax returns on time. If you don’t file your Employer monthly schedule (IR348) by the due date, you may have to pay a late filing penalty.
- Failing to make or pay deductions.
As an employer you are responsible for making various deductions, such as PAYE, SSCWT, student loans and child support, from your employees’ gross wages. It is a serious matter if any employer does not properly deduct or pay employees’ PAYE or other deductions to the IRD.
Employing casual staff over the holiday period
With holiday periods it is timely to remind employers about their obligations if they employ students or casual staff over that period.
Like any new person working for you, students need to complete a Tax code declaration (IR330) that includes their IRD number and tax code. If they don’t give you a completed IR330, you’ll need to deduct tax at the no-notification rate. For employees, this is 45 cents in the dollar plus the ACC earners’ levy (1.39 cents in the dollar for the 2017 tax year). For workers receiving schedular payments, refer to page 4 of the IR330 to find the correct rate to deduct.
If you employ full-time students in your business and they think they’ll earn under the annual repayment threshold ($19,084 for the 2017 tax year) they may be able to get an exemption from making student loan repayments on salary or wages you pay them. If they’re granted the exemption, they’ll have to give you a copy of the exemption certificate.
Earnings include any NZ Super, Veteran’s Pension payments or student allowances, as well as income from other sources.
You don’t have to enrol temporary employees for KiwiSaver.
Temporary employees are employed for 28 days or less, or employed to work “as and when” required without a specific end date, for 28 days or less. But if an employee is already a member and gives you a KS2, you must deduct KiwiSaver and pay employer contributions.
Employer obligations – quick reference summary sheet IR322
The IR 322 is a summary sheet briefly explaining your obligations as an employer.
This summary sheet gives you information that outlines:
- whether you are an employer or not
- your obligations as an employer
- how to register as an employer
- what deductions to make from your employees’ salaries
- what forms must be submitted, and
- where to go for more information
Grace period when failing to meet employer obligations
If you fail to meet any of your obligations as an employer you may be liable for penalties and interest.
The 4 areas that penalties may apply to are:
- Late filing and non-electronic filing penalties
- Late payment penalties
- Shortfall penalties
- Failing to make deductions from payments to employees
If this is your first late payment in a two-year period, (being the later of 1 April 2008 and the day 2 years before the default date and ending before the default date), you will be allowed a grace period. This means that you will have a further period to make payment. If you do not pay, the late payment penalty will be imposed from the due date. Interest will continue to apply.
Employees who take part in payroll giving receive an immediate tax credit for their payroll donation reflected in their PAYE. The employer is responsible for passing the correct PAYE amount to Inland Revenue and advising us of the amount of the tax credits for payroll donation.
What must employer’s check?
When you employ staff you’re responsible for deducting from their pay the correct amount of:
- income tax (PAYE)
- KiwiSaver contributions, if they’re a member of KiwiSaver
- child support payments, if they owe child support
- student loan payments, if they have a student loan
If any of your staff are members of KiwiSaver then you must pay your employers’ contribution to their fund. This is a minimum of 3% of their annual pay.
- Get your employer schedule in on time with your payment and avoid penalties.
- Make sure the correct IRD number and tax code is next to each person’s name
- Make sure you have entered the right amount for people’s KiwiSaver, student loan or child support payments.
- Make sure new employees fill in a Tax code declaration (IR330). If any employees don’t fill in a Tax code declaration (IR330), you must deduct tax from their wages at a higher rate (called the no-notification rate).
- Tell IRD when someone stops working for you through you employer monthly schedule.
- Filing electronically using ir-File is the most accurate and efficient way to send us your employee information.
What IRD are doing for employers
- They contact businesses who don’t file their Employer monthly schedule (IR348) at all, or file them late, to help them comply. If they still don’t comply IRD will take further action.
- They send regular updates about common errors and set up seminars to help business fill in their Employer monthly schedule (IR348) accurately.
- They work directly with new employers that have difficulty with their obligations to help them understand employer monthly schedule filing.
- They check if the correct tax codes are being used.
Deducting PAYE from your employees’ wages
You pay this to IRD either once or twice a month, depending on the total amount of wages you pay. PAYE includes the ACC earners’ levy, to cover the cost of employees’ non-work injuries.
Employers who file their Employer monthly schedule (IR348) and Employer deductions (IR345) electronically through ir-File can offer their employees payroll giving. This scheme gives employees the opportunity to donate to approved donee organisations from their pay and receive an immediate tax credit.
If you have a self-employed contractor working for you, you won’t need to deduct PAYE, but may need to deduct withholding tax.
Complete employer returns
- Send the Employer deductions (IR345) with your payment by the due date.
- Complete an Employer monthly schedule (IR348) with the details of each employee’s deductions.
Pay fringe benefit tax if required
If you supply fringe benefits, e.g. company cars or parking spaces, to your employees, you will need to send us a fringe benefit tax payment by the due date and either a:
- Fringe benefit tax quarterly return (IR420), or
- Fringe benefit tax income year return (IR421), or
- Fringe benefit tax annual return (IR422).
You can either download these forms or complete them online.
Make any further deductions from employees’ wages if required
Other deductions may be child support, student loan, ESCT or KiwiSaver contributions.