Payroll News - 2004
Issue 65 July 2004
In this issue we tell you about an upcoming Payroll News survey and lump sum payments. We also remind you about PAYE due dates.
If you have an employer topic you'd like to see covered in this newsletter or a question you would like answered, you can write to the Editor, Payroll News, PO Box 2198, Wellington or email us and we'll aim to cover the topic in a future edition.
Please pass this newsletter on to the person who deals with the payroll in your business.
We'd like your views
We want to make sure this newsletter meets your needs. To improve the quality of our service and to better understand your needs, we would like to hear your views.
Next month, some of you may receive a survey form along with your August employer monthly schedule (EMS). We would like you to fill out the survey and return it to us with your EMS in the freepost envelope provided. We will also make the survey available online for those of you who prefer to complete the questionnaire electronically, or who have not received the survey but wish to express your views.
The survey will be anonymous and your response will be kept confidential. We cannot tell who you are or trace your responses as the survey forms and employer monthly schedules will be separated before processing.
PAYE on lump sum payments
Lump sum payments are payments you make to your employees for annual or special bonuses, retiring allowances, redundancy payments, gratuities or backpay. There are three tax rates (inclusive of ACC earners' levy) for lump sum payments:
- 22.2 cents
- 34.2 cents, and
- 40.2 cents
in the dollar.
Retiring allowances and redundancy payments are not liable for ACC levy so the rates for these are 21 cents, 33 cents and 39 cents in the dollar.
What rate do you use and when?
The rate you use will apply as follows:
- 22.2 cents in the dollar
when the combined total of the lump sum payment and the grossed-up annual value of the employee's income for the previous four weeks is $38,000 or less - 34.2 cents in the dollar
when the combined total of the lump sum payment and the grossed-up annual value of the employee's income for the previous four weeks is $38,001 to $60,000, or - 40.2 cents in the dollar
when the combined total of the lump sum payment and the grossed-up annual value of the employee's income for the previous four weeks is greater than $60,000.
Example
You're going to pay a bonus payment of $1,800 and the employee's earnings for the last four weeks were $2,800.
| Last four weeks' income | $ 36, 400 |
| multiply by 13 to get 52 weeks' income | ($2,800 x 13) |
| Add bonus payment | $ 1,800 |
| Total income for full year | $ 38,200 |
The employee's grossed-up total income for the year (including bonus payment) is between $38,001 and $60,000 so the bonus payment must be taxed at 34.2%.
If the payment was for redundancy instead of a bonus, earners' levy would not need to be added.
Can you apply a different tax rate?
Your employees can also elect to have any lump sum payments taxed at a higher rate. They may choose to do this if, for example, they have another job or other untaxed income, such as rental income. They will tell you if they want to use a higher rate.
If your employee has a student loan and uses an "M SL", "S SL", "SH SL", or "ST SL" tax code, you will also have to deduct student loan repayments from lump sum payments.
Note
If the lump sum payments are taxed using the lowest rate (22.2 cents in the dollar), tick the circle "Lump sum payment taxed at lowest rate" on the Employer monthly schedule (IR348) to show this.
PAYE due date reminder
From time to time we get asked what PAYE forms need to be sent to us and when. This depends on whether you pay your deductions monthly or twice-monthly.
Are you a monthly or twice-monthly payer?
Monthly payers are employers whose total PAYE deductions (including any specified superannuation contribution withholding tax - SSCWT) in any 12, month period is less than $100,000.
Twice-monthly payers are employers whose total PAYE deductions (including any SSCWT) have gone over the $100,000 threshold in the previous year ending 31 March.
Note
For new employers, the deductions will have to exceed $100,000 in the first year before you need to start paying the PAYE deductions to us twice-monthly.
When is your PAYE due?
Monthly
If you pay your deductions to us monthly, your Employer monthly schedule (IR348) and Employer deduction (IR345) or (IR346) forms and payments are due by the 20th of each month after the month of deduction.
Example
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Twice-monthly
If you are required to pay your deductions twice a month, your Employer monthly schedule (IR348) is due by the 5th of each month after the month of deduction. However, your Employer deductions (IR345) or (IR346) forms and payments are due as follows:
- deductions from wages paid to employees between the 1st and the 15th of the month are due by the 20th of each month of deduction.
- deductions from wages paid to employees between the 16th and the end of the month are due by the 5th of each month after the month of deduction.
Example
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(as as this date is a Sunday, you can file and pay on the next business day) |
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for all of June deductions |
Tax due date reminder stickers
We have a supply of Tax due date reminders (IR319) stickers available, which you can put on your calendar to remind you when your PAYE deductions are due. Each IR 319 sheet contains enough "PAYE due" stickers to cover a whole year.
We also have stickers to remind you when other taxes are due, for example goods and services tax (GST). You can order these stickers by phoning INFOexpress on 0800 257 773.
Tax due date calculator
Did you know that we have an online calculator you can use to produce a list of all the tax filing and payment due dates that may apply to you? This is a handy reminder and will help you plan ahead for future due dates. Your due dates will be calculated based on the information you enter. If you want to know the due date for only some tax types, or some tax types don't apply to you, leave them set at "No" or "Neither of the above" and they will be missed out.
What if you can't pay your PAYE on time?
As an employer you are responsible for making tax deductions from payments you make to the people who work for you. You are responsible for paying these deductions to us on time on behalf of your employees. If you are unable to pay the full amount by the due date, please contact us as soon as possible on 0800 377 771. By contacting us early there may be a reduction in the penalties charged after the due date. Please note that use-of-money interest is also charged on overdue amounts. We will discuss your current circumstances with you and help you work out the best option for dealing with the amount due.
PAYE difference
We've been asked why computer payroll software packages and our website PAYE calculator don't always match the PAYE amounts to be deducted in our paper-based PAYE monthly tax tables.
Example
An employee is paid monthly and is on the M tax code.
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In the above example, the PAYE deduction using the paper-based PAYE monthly tax tables is $1.47 less than the deduction made using the PAYE calculator. This is because the gross earnings shown in the paper-based PAYE monthly tax tables are in $5 increments. To keep it simple and to avoid overtaxing employees, we advise employers who use the paper-based tax tables that where the exact amount of earnings is not shown in the tax tables, they should use the nearest lower gross earnings value. The formulas used in the PAYE calculator on our website and our payroll specifications for payroll software packages are based on the exact amount of earnings.
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Date published: 23 Nov 2004
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