1st April might be a day for some people to pull pranks, but in the world of payroll, it’s often a serious and fraught day.
This year is no exception, with an increase in the minimum wage and new tax changes for payroll staff to incorporate in their employer monthly schedule (EMS), as well as year-end reconciliations.
The tax changes are in relation to ESCT (employer superannuation contribution tax) and student loans.
- The 2% exemption from ESCT is going; from 1 April all employer contributions are liable for ESCT
- ESCT will also be calculated differently: unless you’re paying contributions into a defined benefit fund, you won’t be able to use the 33% flat rate option. Instead, you’ll calculate ESCT at the employee’s marginal ESCT rate
- The ESCT is deducted from the employer contributions and is not an additional payment.
Also remember employer KiwiSaver contributions increase in 2013 to a minimum of 3%.
Employers have to make student loan deductions from their pay when they earn more than the pay-period repayment threshold, for example $367 weekly.
New tax codes are required in the EMS to identify employees with student loans. Payroll must add ‘SL’ to their tax codes, unless they have an exemption or use CAE, EDW or WT.
From 1 April, making the employee’s deductions will be different, for example:
- If the correct student loan deductions are not being made on their salary or wage, they may be paying significantly under what they’re required to. IRD may contact you (and your employee) and ask you to make additional deductions
- You’ll need to identify this extra deduction on your EMS separately, using the new “SLCIR” repayment code
- You’ll need to make student loan deductions at the rate specified and for the period stated on a special deduction rate certificate the employee gives you
- If you’re already making extra student loan deductions for your employee or they ask you to start, identify this on your EMS separately using the new “SLBOR” repayment code.
Average daily pay or average hourly pay?
Practices are emerging among employers where the average daily pay formula is being converted to an average hourly pay formula because they do not have records of the number of days worked.
While understandable, these practices are not strictly legal; EMA recommends employers collect the number of days worked and convert from an average hourly pay to the average daily pay formula as soon as possible.
Another of the Holidays Act amendments tried to clarify what ‘discretionary payments’ were, for excluding from some holiday calculations. Following a recent court case, the meaning of discretionary pay is as murky as ever, and employers are advised to keep all references out of employment agreements and policies if they do not want the amounts caught in holiday pay calculations.
Other amendments in the past year have enabled employees to ask to cash up annual leave, transfer public holidays and take alternative holidays. An employee can be required to provide proof of sickness within three days’ absence if the employer pays the cost of obtaining the medical certificate. Most employers appear to be finding them workable.
David Lowe | Manager of Employment Services
Employment and Manufacturers Association (Northern) Inc