Payroll News - 2006

Payroll News Issue 89 September 2006

• Shearers, shed-hands and shearing contractors
• Your responsibilities if you change your business
• Protected net earnings and child support
• Payments not liable for ACC earners' levy.

Welcome to Payroll News

In this issue we tell you about hiring shearers, shed-hands and shearing contractors, your responsibilities when changing your business entity and child support protected net earnings.

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.

Shearers, shed-hands and shearing contractors

Some of you may soon be hiring shearers, shearing shed-hands or shearing contractors. We want to remind you of the PAYE treatment for the payments you make to them.

• Shearers and shearing shed-hands have PAYE deducted at a flat rate and use the tax code CAE.
• Shearing contractors have withholding tax (WT) deducted unless they hold a current Certificate of exemption (IR331).
• If a contractor or employee has a Special tax code or deduction rate (IR23) certificate, deduct tax at the rate specified.
• If you don't get an IR23 or Tax code declaration (IR330), or the IR 330 is not fully completed, deduct tax at the no-declaration rate.

The current tax rate for CAE is 22.3 cents in the dollar (including ACC earners' levy) or 46.3 cents in the dollar for the no-declaration rate.

The current withholding tax rate for shearing contracts is 15 cents in the dollar or 30 cents in the dollar for the no-declaration rate.

Combined farming and shearing

If you employ a shearer who does ordinary farm work include any wages for this work with their shearing wages.

If a farm worker employed for farm work also does shearing work at shearers' rates of pay, treat the shearing wages as part of their normal pay for that pay period. Calculate the PAYE using the PAYE deduction tables. Do not use the CAE tax rate.

If a farmer does part-time shearing for another farmer, a Tax code declaration (IR 330) should be completed and PAYE deducted at shearers' rates using the CAE tax code.

Shearing contractors

You may come across the following situations if you have shearing contractors and shearing gangs working for you.

• The contractor pays the shearing gang. If the contractor has a current Certificate of exemption (IR331), pay the full contract price. If not, get the contractor to complete a Tax code declaration (IR330) and deduct WT from the payment.
• You pay the wages of the contractor's employees. In this case treat them as if you were employing them directly.

Allowances

Travelling allowances and hand-piece allowances are non-taxable. All other types of allowances, including the value of free meals and board, are taxable. Add the value of these allowances to wages. Show any tax-free allowances paid in your wage records.

For more information read the Employer's guide (IR335) order a copy by calling INFOexpress on 0800 257 773.

Your responsibilities if you change your business

We've been asked to explain what you need to do if you change your business structure, for example from operating as a sole trader to forming and operating as a company.

If you've changed or intend to change your business structure, you need to:

• Call us on 0800 377 772 and tell us that you are no longer employing under your old business entity. Alternatively, you can send us a completed Business cessation (IR315) form and we will then update our records and stop sending you employer monthly schedules (EMS).
• File your last EMS for the old business entity and remember to show cease/end dates for all employees.
• Register as an employer under your new business entity by completing an Employer registration (IR334), which you can do online at Get it done online › by keyword › Employers (payroll), or order a copy by calling INFOexpress on 0800 257 773.
• Call Child Support on 0800 220 222 if you make child support deductions so they can update the deduction notices.

Example

Faye, a self-employed caterer employing five staff, recently formed a company called Eat and Greet Ltd. Faye de-registered as an employer by completing a Business cessation (IR315) form. She registered Eat and Greet Ltd as an employer by completing the online registration form.

Note

Cease and start dates for all employees should be shown on the final and first EMSs respectively.

Protected net earnings and child support

Some employees may have child support deducted from their pay. The maximum amount of child support that can be deducted from an employee's net pay is 40%. Employees must receive 60% of their net pay - this is called "protected net earnings."

Protected net earnings are normally only affected if an employee is paid less than usual. If the child support deduction is more than 40% of your employee's net pay (after tax) don't deduct the full amount of child support.

In this situation you won't need to deduct the difference in future pays. We'll make arrangements with the employee to pay the balance.

Protected net earnings only apply to child support. After deducting PAYE you must deduct child support before deducting anything else such as:

• student loan repayments
• insurance
• superannuation
• union fees.

These deductions should be made even if your employee will receive less than 60% of their pay.

Example

Full wages paid

Sasha's normal child support deductions are $61.35 each week.

Weekly wage	$ 480.00
PAYE deductions	$ 96.07
Net pay	$ 383.93
40% of $383.93 is	$ 153.57

Because $61.35 is less than 40% of Sasha's net pay the full amount of child support should be deducted.

Example

Less than full wages paid

Sasha takes four days' leave without pay.

Reduced wage	$ 96.00
PAYE deductions	$ 15.64
Net pay	$ 80.36
40% of $80.36 is	$ 32.14

As 40% of Sasha's net pay is less than the normal $61.35 child support deduction, only $32.14 child support should be deducted from Sasha's pay.

If you would like to talk to us or see a staff member to discuss child support, please call us on 0800 220 222.

Payments not liable for ACC earners' levy

We'd like to remind you that when you make payments that are not liable for ACC earners' levy, you need to include the payment in the "earnings and/or withholding payments not liable for ACC earners' levy" box on your Employer monthly schedule (IR 348).

Payments not liable for ACC earners' levy include:

• withholding payments
• redundancy payments
• retiring allowances

Note

People who receive withholding payments are treated as self-employed and are responsible for paying their own ACC levies.

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Date published: 29 Aug 2006

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