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Payroll News - 2005

Payroll News Issue 75 June 2005

Welcome to Payroll News

In this issue we tell you why some employees have to pay tax at the end of the year and we remind you about personal tax summaries and correcting your employer monthly schedule after it has been filed.

If you have an employer topic you'd like to see covered in this newsletter, please write to the Editor, Payroll News, PO Box 2198, Wellington or email us at payroll.news@ird.govt.nz 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.

Why some employees have to pay tax at the end of the year

There may be a number of reasons why an employee may end up with tax to pay at the end of the year or in some cases have a refund due.

To keep employers' compliance costs to a minimum, the PAYE system was designed on employees receiving an annualised wage or salary. This is based on 52 weekly, 26 fortnightly, 13 four-weekly or 12 equal monthly payments, depending on how often the employer chooses to pay staff. When the wage or salary amount varies (i.e. wages change from pay period to pay period) or when there are more than the standard number of pay days per year (eg 27 fortnightly payments), employees may end up with tax to pay.

Example

Gross annual pay of $38,000 equates to 26 fortnightly payments of $1,461.54. If any employee receives 27 fortnightly payments at $1,461.54 their annual salary equals $39,461.58. However, the employee has only been taxed on the basis of an annualised salary of $38,000.

When an employee hasn't worked a full year they are likely to have had PAYE over-deducted because PAYE is deducted on the basis of the payment amount being the same for the number of standard paydays within the year.

Example

An employee comes back to work after taking maternity leave and only works for the last six months of the tax year. PAYE on gross fortnightly payments of $1,461.54 using tax code "M" equal $302.18 (includes earner levy). As the employee has only received 13 fortnightly pays during the year their total gross earnings are $19,000, not the $38,000 the PAYE has been calculated on so they would be entitled to a refund.

If you have an employee in this situation they can use the personal tax summary calculator on our website www.ird.govt.nz to work out whether they are due a refund and to request a personal tax summary if they are.

The personal tax summary (PTS)

In the April edition of Payroll News we gave you the 2005 income tax timetable. Here's another reminder that some of your employees might shortly be receiving a personal tax summary (PTS) from us for the 2004-05 tax year. The PTS is an end-of-year square-up which calculates a person's tax and shows if they have tax to pay or a refund due for theyear. This form is pre-printed using income and tax deduction details from the employer monthly schedules you file through the year. That's why it's important that your schedules are always accurate. If an employee questions you about the details on their PTS, please confirm that their income and tax deductions match up with your wage records for the 2004-05 tax year.

If the PTS shows different income and/or tax deduction details from your wage records, this might mean that some adjustments need to be made to monthly schedules you have sent us in the past. If there are only a few changes to be made to your monthly schedules, you can do this over the phone by calling us on 0800 377 772. Otherwise, send us an Employer monthly schedule amendment (IR344) form-see the following article for how to make amendments.

Using the IR344 amendment form

The Employer monthly schedule amendment (IR344) form can only be used for amendments to one month's PAYE details. If changes cover more than one month you should use a separate form for each month. Enter your name, IRD number, and the period you are changing at the top of the IR 344. You can amend an employee's pay details by writing in their name and IRD number, the figures you originally sent in, and the changes to be made. You can amend up to three employees' details on each form.

You can get a copy of the form from our website www.ird.govt.nz or by phoning INFOexpress on 0800 257 773.

Using the IR344 is the most convenient and easy way of amending monthly PAYE details. However, if you intend to write a letter to show the amendments, please make sure you include:

  • your name
  • your IRD number
  • the period you are changing
  • the name and IRD number of the employees whose details you are amending
  • the original details sent in and details of changes to be made.

Electronic amendments

If you file your employer monthly schedule electronically and you only want to make a few changes, you can make amendments by phoning us on 0800 377 772 or complete an Employer monthly schedule amendment (IR 344) form and send it to us.

You can get a copy of the form from our website or by phoning INFOexpress on 0800 257 773.

Note

Please remember that your employees will need to call us personally to provide their individual changes so their PTSs can be updated.

Employing spouse or civil union partner

If you employ your spouse or civil union partner in your business (unless your business is a company) you will need approval from us to pay them wages. If you do not have approval you cannot claim a deduction for their wages in your business accounts.

To request approval to employ your spouse or civil union partner, you need to apply to us in writing, giving the following details:

  • The type of business and full details of the nature of work to be undertaken.
  • The average number of hours worked each week, and the. Number of weeks to be worked during the year
  • The amount of wages paid and how payment of wages made, eg cash at regular intervals, periodically or crediting to a bank account.
  • Details of any other workers you employ and the total amount paid as wages, not including the wages paid to your spouse or civil union partner.

We give approval if:

  • the payment is solely for services given in the course of carrying on the business, and
  • the payment is not excessive (the rates must be the same as those you would pay to an unrelated employee for doing similar work).

You should apply for approval before you start paying wages to your spouse or civil union partner. You need to reapply if you increase the wages as a result of:

  • an increase in the duties performed, or
  • an increase in pay that is not a general wage increase.

Note

"Spouse" and "civil union partner" does not include a person you are separated from.

Payroll News index

The half-yearly Payroll News index will be sent out with the next (July 2005) edition of Payroll News.

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Date published: 31 May 2005

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