Issue 58 November 2003 (Payroll News)

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Payroll News - 2003

Issue 58 November 2003

Holiday pay and PAYE
Getting it right - family assistance payments
Non-resident contractors' withholding tax simplified
Explaining some employer monthly schedule (EMS) acronyms
Provisional tax due

Holiday pay and PAYE

It'll soon be the holiday season and you might be starting to think about paying holiday pay to your employees. If you're not sure how much PAYE to deduct from holiday pay, follow these three simple steps. If you are paying three weeks' holiday pay to an employee:

Divide the amount to pay by three to get a weekly amount.
Calculate the PAYE on this weekly amount using the weekly PAYE tables.
Multiply the week's PAYE by three to get the total PAYE to deduct from the gross holiday pay.

Or you will find our holiday pay calculator on our website very handy to work out how much to deduct from an employee's holiday pay. You will find the PAYE on holiday pay calculator under the 'Calculators' menu.

Holiday pay and child support deductions

If you make child support deductions from an employee, you need to deduct it from their holiday pay as well, at the usual rate.

Example

An employer normally deducts $50 child support per fortnight from an employee's wages. If the employer is paying three weeks' holiday pay in advance in December to cover the Christmas break, together with a fortnight's wages, they need to deduct a total of $125 in child support, $50 from the normal fortnightly pay, plus $75 from the three weeks' holiday pay.

When you fill in the child support portion on your Employer monthly schedule (IR348) please complete the child support code box with an "A" to show that it is a deduction in advance.

In the above example, for January the child support deductions will be less than the amount expected (based on the deduction notice applying). You need to use the code "D" to show that the shortfall has been deducted in the previous month.

To find out more about calculating PAYE on holiday pay, read page 12 of your 2004 tax tables or phone us on 0800 377 772. If you have questions about child support and holiday pay, please phone us on 0800 220 222.

If you want more information about the rules for holiday pay and how to calculate it, phone the Department of Labour's Employment Relations Infoline on 0800 800 863, or visit their website at www.ers.dol.govt.nz

Getting it right - family assistance payments

Some of your employees might receive fortnightly family assistance payments from Inland Revenue. Family assistance is financial help (either fortnightly payments or a lump sum at the end of the year) for working families who have children aged 18 years and under living with them.

How much financial assistance a family is entitled to, depends on how many children they have and how much the family earns. Families who choose to receive their payments fortnightly are required to estimate their annual income as accurately as possible. To ensure that people are receiving the correct amount of family assistance, we regularly review the income estimate based on the information we receive each month from employer monthly schedules.

To help us keep income estimates as up to date as possible, we will soon be sending a letter to all fortnightly recipients of family assistance asking them to check their income details. Some of your employees may be in this category.

You, as the employer, do not need to do anything.

If your employee has any queries about their income estimate for family assistance purposes they should phone 0800 227 773.

Non-resident contractors' withholding tax simplified

The Government is going to simplify the tax rules on payments to non-resident contractors to reduce compliance costs for both employers and non-resident contractors.

The changes include:

extending the time that contractors eligible for relief under a double tax agreement may work in New Zealand without having to seek a certificate of exemption, and
exempting payments for contract work amounting to less than $15,000 within a 12-month period.

The proposed date for these changes to become effective is 1 December 2003. We will update you again in the December edition of Payroll News.

Tax relief for non-resident contractors

At present, if a non-resident contractor is eligible for relief from tax under a double taxation agreement and is physically present in New Zealand for less than 62 days in any period of 12 months, the New Zealand employer will not be required to deduct any withholding tax.

It is proposed that from 1 December 2003, the 62-day period will be extended to 92 days. We hope this will help save time and effort for both employers and contractors.

Exempting payments

Also from 1 December 2003, payments for contract work amounting to less than $15,000 per contractor in total in a 12-month period will be exempt from non-resident contractors' withholding tax. New Zealand employers should be careful when applying this exemption, because it relates to the contractor and the total amount the contractor earns, rather than to how much the employer pays.

For example, if a non-resident contractor earns $10,000 working in New Zealand on one occasion, and returns to New Zealand within 12 months and earns another $10,000 from another New Zealand party, the exemption will not apply to either contract.

This means that any non-resident contractors who meetany one of these criteria does not need to obtain a certificate of exemption from Inland Revenue and does not need to have any withholding tax deducted in these circumstances.

For further information please refer to Tax Information Bulletin (TIB) Vol 15, No 11 (November 2003).

Website

Please go to our website for examples of non-resident contractors and more information on this topic.

Explaining some employer monthly schedule (EMS) acronyms

Tax codes

Listed below are some of the tax codes and what they mean. These codes can be used by an employee on their Tax code declaration (IR330) and you enter them on your EMS in the tax code box.

CAE	casual agricultural worker, shearer or shearing shedhand
EDW	election day worker
STC	special tax code certificate
WT	withholding payments/tax
ND	no-declaration

ND tax code is to be used if an employee has not provided an IRD number or has not provided a tax code. We also use the ND code on your EMS if either IRD number or tax code are not provided.

Child support

Listed below are the child support codes that tell us of any differences in the amount you deduct.

A	payment in advance
D	previously deducted
P	protected earnings
C	ceased employment
O	other
S	short absence

Provisional tax due

For those who pay provisional tax and have a standard balance date of 31 March, your second instalment of 2004 provisional tax is due on 7 November 2003.

You can make your payment:

electronically through your bank
by taking the payment slip into your nearest Westpac bank
by sending us your cheque and payment slip with the letter in the reply envelope.