Should PAYE deductions be paid on a pay day basis? | Better administration of PAYE and GST

Aligning PAYE payment dates to pay dates

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.

Questions

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?

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Comments

David

Yes it would allow the payment to employees and IRD at the same time allowing saving of time and efficiency.

8 months ago

David Williamson

There would be additional costs as there are more payments. Some companies pay employees in different periods such as some are weekly and some are fortnightly. One payment per month is sufficient in most cases.

8 months ago

Haydn J

1. No 2. Aligning payment of PAYE to payday would increase the compliance burden, from making one payment/month to multiple payments. It is not just the act of making the payment, there is then the issue of recording the additional transactions within the accounting system and more chances of errors occurring. 3. No. They are not currently linked and there is no reason for them to be. 4 No. I won't change my business processes to meet changed tax obligations.

8 months ago

Software training contractor

1. Where it offers a saving to employers, yes. 2. Potential exists where employers have differing pay periods for this to be a pain in the rear. 3. For a single pay period employer, yes 4. It would for some. I'd personally be tempted to go for a monthly payment as an employer, but a LOT of employees on minimum or near minimum wage would be caused undue hardship if this occurred. 5. Yes. Surely this would prompt a few tax agents to roll out a product that caters for these, thus making the 'problem' go away? Employers might want to consider this as an incentive for employees to join/stay.

8 months ago

Mike Ross

No - for small business we are all about cash flow. Sometimes we have a lot of cash and sometimes we have no cash. So a PAYE payment delay that can align with when we have cash is the best approach. The 20th of the month following with no penalty if you miss by up to 48hrs would be the best.

8 months ago

Response:

Tim

I agree with Mike Ross that for many typically under-capitalised small businesses, there would be a significant impact on cash flow if PAYE is required to be paid every pay day. Rather than saving time for IRD, there would be extra load on IRD call centres with companies requesting arrangements for delayed payment. Businesses would be charged penalities and/or interest for these delayed payments, resulting in what in effect would be additional taxation.

8 months ago

Joanne

PAYE for small businesses should be payable only once a month. Paying every payday would increase the workload - additional calculations, payments and accounting. I don't agree that the benefit to my business of monthly payments offsets the costs of compliance, but I don't want to see additional costs of compliance.

8 months ago

Carole Stewart

I think that monthly payment of PAYE is sufficient as it covers all types of pays e.g. weekly, fortnightly, monthly

8 months ago

Jessica

One payment a month is fine and has been working well. Changing it will mean more work and costs pop up and I thought things were supposed be easier! It will just introduce more stress!!!

8 months ago

Nadine Banfield

Perhaps something a business can nominate rather than a one rule fits all.

8 months ago

michele hunt

I prefer monthly - with my IR easy

8 months ago

Jennifer Holloway

Aligning PAYE obligations with pay dates would definitely increase compliance costs for small to medium businesses.

8 months ago

Kelvin Marks

I think the Gst and Paye should be calculated from the back statement as all business have a bank account so you code the transactions and the ird can have a running total I agree with all deductions for paye happen at each pay which will include acc and all other deductions which will be done by a simple calculation from the tax code

8 months ago

Linda

We currently transfer the payment for PAYE each week to IRD so at the end of the month the Trust doesnt have a large sum to find for payment. It keeps our account at the level that is more realistic as the PAYE has already been paid up to date each week. GST on the other hand is easier managed on the accounting system as it has the potential for adjustments to be made with bad debt etc before being filed.

8 months ago

peter Warwick

These questions all relate to the issue of forcing all businesses to submit PAYG information electronically. if the answer to that question is NO it should not be compulsory to submit by electronic means the all of these questions are irrelevant. I believe it would be legally challengeable if the IRD forced businesses to file by electronic means, I certainly would challenge that or have a long chat with my local MP. So to answer all questions here at once i think no dates should be changed or pay day PAYG payments to IRD should be made.

8 months ago

Lawrence Goldsmith

Regarding paying PAYE at the same time as paying employees. When an employee is paid, they are paid before the employer has received profit for their work. To pay PAYE at this time would mean paying the tax before any payment (and profit) has been received by the employer. It was originally set at the 20th following for a very good reason. This is when the employer (hopefully) is paid for the workers output. It would be unfair to demand PAYE be paid earlier than it is. If the employer has not been paid, why should IRD be paid any earlier. This would just end up being another burden to stretch employers' finances.

8 months ago

Response:

Andrea

PAYE does not belong to the employer - it belongs to the employee and, as stated in the intro, is held in Trust on their behalf until paid to IRD. There is no relevance to the employer being paid for the employee's time - large employers already pay on the 5th & 20th of the month. Also, most businesses today bill on a 7 day payment basis, no longer the 20th of the month following. As to the "trust" , this trust can be (and is) broken by employers who do not pay the PAYE at all!! IRD already spend time chasing up payments. I think that better budgeting and cash management (and a good relationship with a banker) can overcome some of the objections noted.

8 months ago

Response:

Noel Reid

Andrea You must work in a very different environment to ours. Requesting 7 day payment doesn't make any difference to when most largest organisations actually pay their bills. Just last week, I was told one of NZ's largest corporations, facing some challenges, have notified all suppliers they are now "on" 90 day payment terms!!

5 months ago

Chris Peace

1. Not a problem for me if I am using Xerox 2. Sometimes. 3. No 4. No

8 months ago

Peter R

Payment once a month is definitely preferential for an organisation like ours where cash flow can be a problem. I know what amount is required the following month and can budget for it.

8 months ago

Carolyn Johnston

Yes aligning submission and payment would make PAYE easier and more cost efficient for small businesses.

8 months ago

Alex Sherbin

The above proposed system does not allow for reconciliation of PAYE before reporting the figures to Inland Revenue. I would envisage a lot more errors being made in PAYE reporting as a result. Alex

8 months ago

Jenette K

Not definitely not! There is enough to do to comply with now as a small business, and it would be additional unpaid time spent at work with no reward!

8 months ago

Lisa

I'm treasurer for a small charity. Re timing of payments: when I can, I set up my PAYE payments as I pay our (monthly) wages, otherwise there's a risk I'll forget to go back and do it by the 20th. Unfortunately, the forms are not always available online by the time I pay our wages (which is the last Sunday of the month). It would be helpful if the forms were available, say, a week before the end of the calendar month for organisations that operate like we do.

8 months ago

Paul Ferguson

The tax and the Kiwi superannuation monies don't belong to the business as of pay day. These monies belong to the Government and the employee. Why should a business hold on to that income, placing it into an interest bearing account or using it otherwise. The employee should be getting that benefit, they have done the work and the government would be able to utilise those tax funds sooner. Why doesn't the IRD develop a cloud based software for employers which will calculate tax etc. for each employee, bundle it all together and give you seven days to pay it, what could be simpler and less time consuming. More processes in this day and age should be getting faster not trying to retain the old form filling and posting era. There will obviously be some who are bound in some way to do things the old way and need to apply for an exemption.

8 months ago

Response:

Noel Reid

Paul, when PAYE was first introduced, "the deal" with businesses was that they could defer the payment of the tax monies as some recompense for being "unpaid tax collectors". Since then, things have got more complex for employers; not simpler. The same rationale was used more recently when GST was introduced. So, as a business owner, how can you agree to a change that disadvantages your business and adversely affects your cashflows?

5 months ago

Gaylene Underwood

Absolutely not. Once a month is certainly enough for small business to deal with this. This would create more work.

8 months ago

Bernadette

I don't mind paying PAYE at the same time as wages - and think this would actually make the process more efficient for me, instead of having to remember to do it on a different day. But I may consider paying monthly instead of fortnightly.

8 months ago

Hailey Martin

1. Yes, but this should not be made compulsory until the IRD has approved and integrated this service with a wide variety of payroll systems so that returns are fully automated and the deductions are included in the regular payment batch. This should be introduced with additional education around payroll options. For example those small business owners currently paying using spreadsheets may not know about free services such as thankyoupayroll. 2. With automation this will reduce costs, without automation this should not be introduced. 3. It is easier from an admin point of view if a payment is linked to a single information file, but if the IRD could keep a running balance rather than allocating payments to fixed periods that would make life a lot easier. 4. No. 5. Yes, they are unlikely to use a payroll system or intermediary.

8 months ago

Raelene Myers

I think the increase in compliance costs would be huge if people had to pay IRD the PAYE at the same time they pay their employees. A lot of our clients have staff on salaries which are paid by automatic payment, and also people paid weekly with differing hours. We usually process the PAYE for them at the end of the month based on what they have paid their staff. There is also the issue of additional payments like bonuses etc. Under this new proposal they would need to contact us each time someone was paid so we could calculate the PAYE and forward it to IRD. This would cause huge costs to a lot of people.

7 months ago

Common Sense

In response to the questions in the order that they are provided: 1. Definitely not, has substantial increased compliance costs as our staff in a very small business are paid weekly. This would result in substantial compliance costs which our small business can not afford. 2. Increased compliance costs in administering (time - rather than once a month would be 4 or 5 times a month) and software charges. Software developers are not going to do anything for nothing - yeah, right. 3. Definitely not. 4. Definitely not. 5. Yes, by the 20th of the month. Further more we will vigorously oppose any change. We would simply change our staff to self employed as op[posed to employees and would fully support all other employers doing likewise

7 months ago

Claire

Sumitting to IRD at each payment of wages is another compliance action required. As a small employer it is already hard enough to fit in time off with all the deadlines we have. Leave it as it is. As we employ various casual staff I find the electronic form filling is tedious for PAYE so prefer to print off my software to post, however GST electronic filing is simplist. Calculating PAYE deductions can be very confusing with Kiwi saver and student loan etc when employing various casual staff so I would like to see that simplified.

7 months ago

LouiseLyons

I would strongly disagree with any changes making it necessary to file PAYE returns more frequently than the present system or be forced into filing on-line. I work on farm, take care of my children ( one with a disability),and manage the office. I feel the increase in "office" work over the last five years has been ridiculous. I was persuaded at Fielddays to file our PAYE returns on-line and now find that there are often problems with the website "timing out", or being completely inaccessible, making it necessary for me to have several days in the office hoping that this time it will all go through. It seems that having begun to file on line I can no longer receive paper forms to fill in if the internet issues arise. This is one of the reasons I refuse to begin filing my GST on-line. If on occasion I make an error with the on-line form it can take days and many emails to correct this through the secure email and deleting details on a completed form for resubmission is cumbersome and time consuming. We have had to invest in increased computer costs, both hardware and internet service, as well as funding extra hours for staff to cover me on farm. We pay two of our staff weekly, one fortnightly and one monthly: if we had to pay the IRD at the time of paying the employee how would this work? We would be tempted to pressure our staff into being paid less frequently and all at the same time.

6 months ago

Mario Becroft

Employers should have the option of providing all information on pay day, but it should not be required. I don't see how this simplifies anything. Being able to file any time up to the 20th of the following month gives small employers sufficient time to fit the work into their already busy schedules. Being required to do filing processes with tighter deadlines gets a big No from me.

6 months ago

Jac

We pay employees fortnightly, but all other business expenses are scheduled as monthly payments; particularly after the 20th of the month which is when most of our contract payments are received. It would be easier for us if the PAYE payments were due on the 20th of the month as they are; rather than being aligned to the date we pay wages.

6 months ago

Martin Etherington

1. Yes. Some payroll software already have the option to pay taxes, deductions and kiwisaver automatically each pay, to Inland Revenue and other third parties. If used, the software just adds the taxes amounts to the same payments batch file as the net wages that is produced and uploaded to the bank when preparing the pay. 2. For those using payroll software, it will reduce compliance costs. It doesn't add any extra time each pay and it removes the need for an extra monthly or twice monthly process. For those not using payroll software, there would be a slight increase in time taken to total the taxes, etc. for the pay and create/enter an additional payment along with the employee's net pay. (And some time to enter the details on line). Again this would be offset by the removal of the monthly process. For those who have set up APs to pay their staff net pays, they would need to add an additional AP to pay the taxes. And they would need to remember to file the information each pay rather than once a month. 3. Assuming payment is made at the same time staff are paid, and information is sent when the pay is processed or calculated (and the payment prepared), then they are linked. Processing usually occurs prior to payment. But the number of days between processing and paying the staff can vary depending on circumstances, from the same day to several weeks. (e.g. Christmas/New year pays may be processed several weeks ahead of the staff being paid). I would assume when sending the information for a pay period, it would include the payment date, so that IR knows when to expect the payment (and when to apply penalties, etc). 4. No, for those using payroll software. No, for those not using payroll software, provided the process of entering the information into myIR and adding new employee's is very easy to use. 5. Yes The issue of negative pays (which are not that uncommon in practice) must be handled well by this system. Any negative earnings, taxes, deductions, and kiwisaver amounts must be able to be entered and/or filed electronically without a separate process. And if the total taxes for a pay is negative the payment to IR would be zero, with a refund expected.

5 months ago

Tim Stewart

No. Any decrease in compliance costs from such a change will be far outweighed by the increased strain on cash flow, to the point that it is likely to increase the chance of financial difficulty. In general, NZ businesses operate on 30 - 60 day payment terms. Increasing the rate of payments to match wages would significantly increase the cost of business, especially to businesses (such as those in the recruitment industry) who pay wages on weekly cycles.

5 months ago

Noel Reid

Q1 - NO Q2 - No change to complaince costs, but significant negaitive impact on cashflow Q3 - No Q4 - yes, possibly, to help conserve cashflow. Why does IR make reference to what Australia does in other areas, but not this one? Presumably IR are aware that the Aus Federal Govt considered something similar last year, and decided against it, primarily because of the adverse impact on business cashflows....

5 months ago

Barry Evans

If the idea is to improve efficiency then why would you propose increasing the number of payments and administration/reporting costs by 4 to 5 times (we pay our staff weekly). Monthly is often enough. Regarding "helping" struggling businesses with cash-flow, perhaps IRD should delay the payment date to the last day of the following month, which is now the day the multinational and corporate Financial Officers seem to have determined is appropriate for paying their invoices due on the 20th of that month.

5 months ago

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