Issue 67 September 2004 (Payroll News)

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Payroll News - 2004

Issue 67 September 2004

Employee details on the employer monthly schedule (EMS)
Does your employer monthly schedule balance with your payments each month?
Allowances - taxable or tax-free?
Planning to change entity?
Have you changed your address?

Welcome to Payroll News

In this issue we tell you about taxable and tax-free allowances and remind you about correctly recording employee details on the employer monthly schedule (EMS).

Please pass this newsletter on to the person who deals with the payroll in your business.

Employee details on the employer monthly schedule (EMS)

We'd like to remind you that on your Employer monthly schedule (IR348) you need to enter the total earnings and deductions for each employee for the month, not for each pay. For example, if you pay your employees weekly, you enter the totals for the month on one line, rather than on a separate line for each pay week. The only time an employee needs to appear on more than one line within one month's schedule is when that employee uses two tax codes for the one employer and one is a PAYE tax code and the other is a withholding tax (WT) code.

Does your employer monthly schedule balance with your payments each month?

When you complete your Employer monthly schedule (IR348), please remember to make sure the sum of all the deductions on the schedule equals the payment you send us with your Employer deductions(IR345) or (IR346) form. Some employers are paying more each month than is shown on the schedule and this could mean the information included on the schedule is not complete.

To avoid the need for rework on previous months' schedules, please ensure your business has a process to reconcile your payments to your schedule every month, before you send it to us.

Allowances - taxable or tax-free?

Aside from normal salaries and wages, you may make other payments to your employees. Here, we tell you the most common allowances and explain the tax treatment for each.

Taxable allowances must have PAYE deducted, along with the employee's wages. If you do not do this, you could be liable for the PAYE that should have been deducted as well as penalties. Include the total taxable allowances with your employee's gross wages amount on your employer monthly schedule. Tax-free allowances should be added to your employee's net wages (wages after PAYE) when you pay them. Show the total amount of tax-free allowances paid in your wage book.

You can decide for yourself whether the allowance you pay is tax-free or not. To help you work this out we've set out below the three types of allowances commonly paid.

Benefit allowances

Payments made in addition to salary or wages which benefit the employee. A benefit allowance is taxed with the employee's wages in the pay period it is paid.

Food or accommodation provided to an employee may also be a benefit allowance. The taxable benefit is the difference between the market value of the benefit provided and any amount the employee pays.

Add the taxable value of the benefit to the employee's wages each pay period, and deduct PAYE from the total.

Example

Market value of accommodation	$150 per week
Less rent paid	$90 per week
Value to be added to wages and taxed	$60 per week

If the employee paid no rent, the value to be taxed would be $150 per week.

Any allowance you pay to an employee instead of providing them with accommodation is fully taxable.

Reimbursing allowances

Payments made to employees to compensate them for expenses they have had while doing their job, such as meal allowances, mileage allowances or tool money.

Reimbursing allowances are not taxable. However, if the payment is more than the employment-related expenses, the excess is taxable.

Travelling allowances

A cash allowance paid to an employee for travel between home and work may be tax-free. It is tax free if the amount paid reimburses an employee's additional transport cost and one or more of the following special circumstances exist:

the employee is working outside the normal hours of work (for example, overtime, shift or weekend work)
the employee needs to transport work-related tools and equipment, eg the employee normally takes the bus to work but has to use some other type of transport in order to carry work-related gear
there is a temporary change in the workplace
the employee is travelling to fulfil an obligation for the employer
there is some other condition of the employee's job
there is no adequate public transport system serving the workplace.

For all the special circumstances above (except the lack of adequate public transport) the tax-free amount is the actual transport cost.

Example

An employee travels 20 km between home and place of work.

20 km @ 62 cents for each km (see note below)	$12.40
Less usual transport costs	$6.00
Additional transport costs	$6.40

In this example $6.40 is tax free. If more than this is paid, the excess is taxable. Deduct PAYE from any excess amount along with the employee's salary or wages.

If there is no adequate public transport, the usual cost of travel between the employee's home and place of work is set at $5 a day. To find out more about allowances, read our Employer's guide (IR335). You can get this from our website or order a copy by phoning INFOexpress on 0800 257 777.

Note

Inland Revenue's mileage rates can be used if the actual cost per kilometre is not available. You can get a copy of the mileage rates from our website or by phoning us on 0800 377 772.

Planning to change entity?

If you are changing entity from a sole trader to company, or partnership to company, you need to:

tell us when you cease your current entity, and
re-register under the new entity.

Please call us on 0800 377 772 to go through all the steps you'll need to do to change entities.

Have you changed your address?

Please contact us as soon as possible if you change your address and/or telephone and fax numbers. Just phone INFOexpress on 0800 257 777. We're available after hours and on weekends.