Under current law, employers are required to deduct PAYE and other amounts from employees each pay day, and are required to pay it to Inland Revenue at some later time. Employers which have an annual PAYE and ESCT liability of less than $500,000 are required to pay deductions to Inland Revenue by the 20th of the month following the pay date. Employers with larger annual liabilities are required to pay deductions made between the 1st and 15th of the month on the 20th of that month, and deductions made after the 15th on the 5th of the following month.
This delayed PAYE payment offsets some of the employer’s costs incurred in complying with their PAYE obligations. However, it also creates an additional compliance process and costs.
If paying PAYE and other deductions to Inland Revenue was aligned with the timing and processes of paying employees, the following benefits would arise:
- PAYE, KiwiSaver contributions, student loan repayments and child support payments could be passed on to the relevant parties more quickly – benefiting the Crown in the case of PAYE and student loan repayments, the employee in the case of KiwiSaver contributions, and custodial parents in the case of child support.
- Employers would be less likely to get into financial difficulties by using PAYE amounts they hold in trust to cover other expenses.
- Employers having problems meeting their obligations could be identified and supported earlier.
- Employers’ compliance costs could be lowered by eliminating the separate payment process, which combined with the proposal to provide PAYE information on a payday basis, could turn the entire payroll and PAYE processes into a single combined process to be carried out on payday.
These benefits need to be balanced against the benefit employers get now from retaining PAYE deductions until they must be paid to Inland Revenue.
However, PAYE deductions made by an employer are held in trust until paid to Inland Revenue. Despite this, some employers use PAYE deductions as working capital. Failure to pay PAYE is a serious offence and can result in prosecution – the proposal would reduce the risk of PAYE payment failure.
This proposal would also see many employers paying PAYE more frequently than they do now, and may influence some employers to pay their staff less frequently than they do now.
Elsewhere in this consultation the Government suggests that IR56 taxpayers continue to operate on a monthly cycle. It is proposed that the timing of information and payment continue to be aligned for these taxpayers.
1. Should the timing and process of employers’ PAYE payment obligations be aligned with the process of paying salary and wages to employees?
2. Do you think this alignment would increase or reduce compliance costs and effort? If you can quantify the effect please do so.
3. Do you believe that the timing of PAYE payments made to Inland Revenue is necessarily linked to when PAYE information is provided?
4. Do you think PAYE payment to Inland Revenue on a pay day basis would influence the frequency with which you will pay your staff?
5. Do you think, for IR56 taxpayers, the due date for payment of PAYE deductions should remain aligned with the due date for providing PAYE information to Inland Revenue?