Paying employees Te utu i ngā kaimahi

Make sure you calculate employee-related taxes and deductions correctly, so your employees get paid and you meet your obligations.

You could use payroll software yourself, outsource your payroll or hire a payroll specialist. But even then, having an idea of the different taxes and deductions is good, so you’ll know what’s involved and how you and your employees are affected.

You may need to make several deductions from salaries and wages at payroll time. Some will be mandatory, like taxes, while others will be voluntary, like donations.

PAYE

PAYE (pay as you earn) is income tax that applies to everyone and reduces employees’ income tax bills at the end of the year. PAYE includes ACC payments towards ACC earner’s levy.

Other main deductions

These are the other main deductions:

• KiwiSaver and other superannuation contributions apply when employees contribute to their retirement savings.
• Student loan repayments apply to employees who took out loans to cover their university expenses.
• Child support payments apply if someone has to contribute to expenses for their children, usually after a marriage or relationship has ended.

Take care when calculating pay for leave, because different types of leave require different calculations. Following these tips will help you pay correctly:

• Keep accurate, up-to-date employee records, so you use the right data.
• Give staff paid annual leave unless they are casual staff.
• Pay staff for public holidays if they normally work that day.
• Understand that if a public holiday falls on a weekend, employees who don’t work on weekends get the following Monday off instead.
• Ask a payroll specialist for advice or to help you set up a good system if you’re unsure how to calculate leave payments. 

You may want to offer benefits to attract employees, this is known as fringe benefit tax (FBT). These benefits could be letting someone use a company car for personal travel or subsidising gym memberships because you want to look after your employees’ wellbeing. If you do, you may have to pay FBT on the cost of the benefit – even if the benefit isn’t used. 

Do two things before you offer benefits:

• check if you’ll need to pay FBT (it can be expensive)
• register for FBT with Inland Revenue.

Contributions to retirement funds like superannuation and KiwiSaver involve deductions and payments, including payments for tax. You’ll want to get the deductions right because they build savings for your employees’ future.

Paying employer superannuation contribution tax

If you make cash contributions to employees’ superannuation accounts, including KiwiSaver, you need to deduct employer superannuation contribution tax (ESCT). You’ll need to work out each person’s ESCT rate at the start of each year. The rate changes because it depends on their salary and how long you’ve employed them.

Making KiwiSaver contributions

If you have employees, you’ll have KiwiSaver obligations – even if your employees don’t contribute to KiwiSaver.

For example, when someone joins your business, you’ll need to give them an information pack and enrol them in KiwiSaver if they’re eligible. If they stay in KiwiSaver, you’ll need to deduct their contributions and make your employer contributions each pay period.