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Speed and accuracy of PAYE

Do current PAYE processes cause other problems for employees which should be addressed?

Information employers provide to Inland Revenue is used to deliver various social policy functions, such as:

  • KiwiSaver
  • Working for Families entitlements
  • Income-tested benefit entitlements
  • Student loan repayments

Prompt and accurate PAYE information is important for these amounts to be calculated accurately. The current system has two limitations:

  • PAYE information is aggregated into monthly amounts, which mean it cannot be used to accurately calculate weekly or fortnightly income
  • PAYE information is sent to Inland Revenue in the month after payment was made to staff, therefore Inland Revenue is always working with out of date information.

Examples of some of the current problems arising are:

  • More than 52,000 families were underpaid or overpaid Working for Families entitlements in the year to 30 June 2014, effective redevelopment of this system requires timely, accurate PAYE information.
  • 18,700 student loan borrowers paid a “catch-up” repayment rate of 17%, rather than the standard rate of 12%, because of under deductions (year ending 30 June 2015) which could have been prevented if they had been on the correct tax code.
  • This is an example of a problem which can arise because employers have incomplete or incorrect information when they first start to pay staff.  There is a proposal that employers should send key employee information to Inland Revenue before they start to pay staff, this would help to get deductions set up correctly from the start.
  • Problems which arise from Inland Revenue being unable to verify an individual’s identity. To reduce this problem there is a proposal that individuals supply date of birth  information along with their tax code when they change employers.

Current State

Future State

 

Question

Do current PAYE processes cause other problems for employees which should be addressed?

Comments

David Williamson
Yes but much of this has been caused by the introduction of Kiwisaver

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8 months ago
CRAIG STUART
The extra step of creating an EDF when submitting your paye information is cumbersome and based on the old paper system. The current software is not well designed for electronic communication. Instructions and notes should be off to one side as menus that can be referred to if needed. Old paper forms included instructions because they had to be all encompassing. Electronic forms don't need that clutter. Also printouts that are only relevant for manual postal payments should be available as a separate link or menu and should not clutter the required documentation of the users of electronic payments as they currently do.

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8 months ago
Margie
We have found using the on line calculators for PAYE very accurate for our employees and would not want to introduce new integrated software for managing it. This would create additional cost and effort, especially the time required to have any discussion on the correct deductions required for employees. It is not difficult for an employee to work out what tax code they are and whether they require additional deductions for student loans, kiwisaver etc. We have only had one issue in the past 20 years where we were asked by IRD to change an employees tax code but after discussing it further with IRD and the employee the IRD confirmed that we were using the correct code so no additional changes were required. An integrated PAYE system is not necessary, creates a delay in processing for the additional time to confirm deductions details and as a small business it should NOT be made compulsary.

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8 months ago
Mon
I find the ESCT calculation very time consuming. Why not include this information in the original form with student loan, and other kiwisaver information? Currently I manually record the ESCT amounts on a piece of paper as I go and then transfer the total of these figures into the second page of the document. This leaves room for errors and is very time consuming.

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8 months ago
Angela Dresser
Since everyone's electronic payroll system needs to change periodically to comply with changes why doesn't the IRD create an online payroll system even if there is a small fee for this service, everyone would be using the correct tables etc...? We are almost there already by recording what we have manually or electronically calculated up any how...? By the way I don't have an electronic payroll system as our business is too small.

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8 months ago
Chris Peace
The PAYE and kiwisaver reports I get are laughably out of date - often months, sometimes years old. If a new system enabled up to date reporting it would be welcome.

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8 months ago
Maree
Yes. I have an employee who used S (Secondary) code and should have been on SH. He had $500 odd tax bills for 3 years (had to file returns) and then IRD advised he should be on SH code. It appears this could have been avoided using the proposed system.

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8 months ago
Suzanne Trewavas
I would like to see the EDF/IR 345 ESCT deduction put on the monthly schedule to simplify the payment of ESCT tax.

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7 months ago
Nick Dykzeul
I have just been listening to Alison Taylor on a CCH webinar. She mentioned that Kiwisaver deductions were not included in the review. It seems unusual that this would not be included. A problem occurs when a new employee opts out of Kiwisaver prior to their first pay date. The Kiwisaver deduction is forwarded to IRD then has to be refunded to the employee. It seems strange that this has not been fixed years ago. surely if the employee opts out the employer can refund the deductions prior to filing the EMS and making payment. This would significantly reduce time at IRD and for the employer. Maybe there aren't many people in this situation?

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7 months ago
Administrator
Changes to KiwiSaver auto-enrolment policy are out of scope, however if the current process causes problems, or readers are concerned that proposed processes may cause problems, submissions are invited. The KiwiSaver legislation (section 20(3)) allows the employer to refund, direct to the employee, any deductions they are holding which were made prior to the receipt of the opt-out notification.

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7 months ago
Commonsense 2
Our employees have had no problems over the years with what we currently have. This whole matter is probably being blown out of all proportion to total employees where any issues may arise

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7 months ago
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