The way employers report payroll information to Inland Revenue (IRD) is changing. Following the introduction of a new electronic reporting system, employers have had the option of filing payroll information every payday since 1 April 2018. From 1 April 2019, the new system will be compulsory for most employers, so it is imperative business owners get to grips with the new rules to avoid the risk of non-compliance.
Under the old system, employers filed information about employee earnings and PAYE with IRD every month, regardless of how frequently they paid their employees. Under the new payday filing system, the information must be reported every time employees are paid, which could be complex for businesses with a combination of employees paid weekly, fortnightly and monthly. However, it is hoped that the new system will enable IRD to receive more timely and accurate information, providing employers and employees with increased certainty about their tax obligations and entitlements.
From 1 April 2019, the new system will be mandatory for any New Zealand employer who withholds more than $50,000 PAYE and Employer Superannuation Contribution Tax (ESCT eg. Kiwisaver) per year. Paper filing will remain available for smaller entities who do not exceed this threshold, although they may also opt in.
The details submitted to IRD will remain substantially the same, with additional information required in respect of ESCT payments, the pay cycle frequency, pay period start and end dates and the payday date. There will also be amendments to the way information is collected for new employees. The payday filing system will allow electronic onboarding of new starters, eliminating the need for the existing paper form process. The information will then be directly transmitted to IRD.
IRD’s electronic system supports three ways of collecting the employment information. There is an option for direct filing from payroll software, depending on the accounting software used by the employer, bypassing the need for files to be uploaded through the ‘myIR’ system. Alternatively, information can be submitted electronically or manually through the employers’ online ‘myIR’ account.
Generally, payday filing will require employment information to be submitted within two working days of each payday. So, for a business with a combination of employees paid both monthly and fortnightly, the filing deadline will be within two working days of both the monthly and fortnightly payday. However, for IR56 taxpayers, or employees below the $50,000 threshold, the deadline will be extended to within 10 working days of each pay date, with an option to submit a single monthly report.
A further deviation from the ‘two day’ deadline lies in the area of employee share schemes (ESS). From 1 April 2017, the new employee share scheme rules have imposed a taxable benefit when employees are given shares for free, or when they have purchased shares below market value. Employers are required to report these taxable benefits to IRD; however, under the payday filing rules this remains a monthly obligation which effectively overrides the two day reporting requirement. The payday filing rules encompass this by deferring the date of the ESS benefit until the 20th day after the employee receives the benefit. For example, if an employee received free shares from their employer on 5 October 2019, the payment date for the purpose of reporting the benefit to IRD would be treated as 25 October 2019.
Despite the increased reporting frequency required by payday filing, PAYE payment dates and methods of payment will remain the same. This means employers will continue to file an IR345 (employer deductions form) and send through payment to Inland Revenue once a month.
Although the increased reporting frequency may appear burdensome at first glance, there is an opportunity for payday filing to reform payroll processes, becoming an integral part of the general accounting system rather than an additional monthly task. This integration will work best for software systems that can file directly to IRD, or for systems that can upload data directly to the IRD system. Although payday filing is currently voluntary, lots of software providers have already switched to the new system, providing the opportunity for employers to get to grips with the new rules before they become compulsory. Some employers may need to upgrade their existing payroll systems and procedures to ensure compliance by the mandatory deadline; hence, it is important that employers start considering the impact the changes will have now.
The comments in this article of a general nature and should not be relied on for specific cases. Taxpayers should seek specific advice.