Chapter 4 - PAYE - Modernising how information is provided

Problems with current PAYE process
Providing PAYE informtion at time of business process
Becoming an employer/ceasing to be an employer
Employing staff, maintaining their details and ceasing to employ staff
Date of birth information
Compliance cost implications of provision of PAYE information at the time staff are paid
Amending PAYE information
Information provided to other agencies

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Problems with current PAYE process

Submitters were asked a number of questions regarding what aspects of PAYE processes caused problems or were sources of frustration. The Discussion Document also outlined a number of concerns identified from previous feedback which submitters agreed were concerns and should be addressed. A number of the suggestions to deal with problems with the current process are administrative and these concerns and suggestions will be passed onto Inland Revenue for its consideration.

Summary of comments

Error correction - “Inability to correct errors in real time or self-correct errors on-line.” “Difficulty in making changes to information that has already been filed.”

IRD response time – “Concern with the amount of time it takes IRD to process employer monthly schedules and action amendments.” “The amount of time it takes for amendments to KiwiSaver employer contributions to be processed.” “Of primary importance is the need for Inland Revenue to update PAYE records on a more real time basis.”

MyIR – “…using separate log in details for the IRD portal means that is not possible to see if one member of the team has already dealt with email communications. It would be useful if the portal provided for a better ‘paper’ trail that allows multiple users from a single entity to be able to identify what actions other users had taken.”

Some common themes from the online comments:

“A reminder notice for payments due for PAYE would be helpful in the same way that we receive one for GST.”

“I don't know why the IRD website doesn't save all historical data from using the PAYE calculator so you can then just press a button and do the monthly schedules based off what you already entered…”

“It is also frustrating that the complexity of IRD rules seems to prevent amalgamation of the EMS & EDF into just one form.”

Providing PAYE information at time of business process

This section of the discussion document outlined in more detail the PAYE processes and how those processes could be integrated into the payroll processes so that the PAYE obligations such as providing PAYE information and remitting the PAYE and other deductions could be met as part of the business’ payroll process. In other words, the PAYE obligations being met as a consequence of the payroll event such as paying staff.

Summary of comments

Feedback from written submissions from larger employers and representative groups was generally in favour of, or silent on, providing PAYE information at the time of the business process, although it was noted that there would be one off upgrade costs.

“In general, we agree that this [using software to send payroll info to IR at the time staff are paid] would reduce compliance costs for employers. However some of our members did not feel that there would be a significant reduction in compliance costs arising as a result of being able to send payroll information to Inland Revenue at the same time staff are paid, particularly those who already use the file transfer method to provide employer monthly schedule information to Inland Revenue”.

“… current payroll software system cannot provide pay information to the IRD on a real time basis. The initial cost of upgrading/replacing software to enable this to occur would be substantial, however it would likely reduce ongoing compliance costs due to the reduction in errors and quicker amendment of incorrect tax and PAYE information held.”

Most, albeit not all, feedback on the online forum (assumed to largely be from SMEs) was strongly opposed to payday reporting of pay period information assuming it would increase their current workload in proportion to their paydays in a month and, that it would impose additional costs to adopt or upgrade software. There were positive comments, often from submitters who identified themselves as users of software.

Becoming an employer/ceasing to be an employer

The discussion document proposed that payroll software packages include a feature that requires employers to notify Inland Revenue of a decision to commence or cease being an employer and asked whether such requirements should be included in legislation.

Summary of comments

There was strong support for this from written submitters. The general consensus was that this should not be a legislative requirement but some submitters considered that being a legislative requirement would mean that software developers would build this feature into software. Some smaller employers were against this proposal due to the compliance costs. There was the belief that the EMS already serves this purpose.

“[We] would not support any move to make such a change a legal requirement. As in all areas of regulation, moving from an operational matter to a legal requirement should occur only when there is a significant problem at hand requiring a move up the regulatory pyramid. [We] see no primary reason why these provisions should be included in legislation; any moves in this direction would likely worsen, rather than improve, the current employer-IRD relationship.”

“We support the proposal in principle...”

“It may be useful to include these requirements in legislation so that this encourages software developers to build this option into their software payroll packages.”

Employing staff, maintaining their details and ceasing to employ staff

The discussion document proposed that employers provide, via their payroll software, employee details to Inland Revenue at the time those details are entered, changed, or removed from the payroll system. It was proposed that the following information be provided:

• Employee’s name;
• IRD number;
• Tax code;
• Contact details;
• Start date; and
• Date of birth.

It was also proposed that Inland Revenue would continue to communicate any change of employee obligations to the employee.

Summary of comments

The majority of written submissions supported the proposal to use payroll software to provide employee details to IR at the time those details were entered/changed/removed from the payroll system.

“We agree with this proposal. In addition, we believe that employers would value a response from Inland Revenue in real-time once this information is sent via the payroll system in order to verify that the information provided is correct prior to the first pay run to that employee. [We see] a lot of value in this as if new employees can be correctly ‘on-boarded’ this should ensure more accurate PAYE withholding.”

Smaller employers were less supportive of this proposal due an increase in compliance costs arising from entering employee details into the payroll system.

“No. This effectively turns the payroll system into an HR system, and to achieve the aims stated on pages 38 – 39 require the information in the payroll system to be submitted to IRD prior to the first pay. This is not usually realistic. Additionally, this would impose significant extra cost on those without an electronic payroll system which communicates with IRD.”

“IRD already receives the information that a new employee has started or finished via the EMS. It would be onerous to have to separately advise them that an employee has finished or started. We use a lot of casual staff over the Christmas period and they may then work for us intermittently during the year. I can just put them into the system for a couple of weeks here or there without having to make any special notification to the IRD.”

“This is a great idea. Very helpful to have that information before the employee starts – very annoying when start getting letters from IRD about child support etc, then at least can confirm it with the employee.”

“We generally only add new employees to the payroll software when we are about to pay them so I can’t see the benefit in the information being sent to IRD at that time.”

There was strong support for Inland Revenue continuing to communicate any change of employee obligations to the employee.

“[in regards to IRD communicating changes to employees] Yes then the employee has full knowledge of any amounts withheld. It is critical any such changes are notified to employees; otherwise employees will be requesting information from employers who may not know the reason why the tax rate has increased/reduced.”

“We also support the proposal that IR continue to communicate any change of employee obligations or details to the employee. This enables employees to remain in control of their information and to immediately correct anything they consider to be wrong.”

Date of birth information

Submitters were asked whether employers should obtain date-of-birth information from their new employees and provide this information to Inland Revenue, in order to help Inland Revenue confirm taxpayers’ identities.

Summary of comments

Feedback was generally but not universally positive. The main message from submissions was that if employers are going to be required to obtain employee date of birth information and provide it to Inland Revenue, then it should be legislated for. Alternatively, Inland Revenue could provide a channel for employees to provide that information directly.

Online comments in favour amounted to 56% of responses. Many of those opposed assumed that the alternative, direct employee provision of identity information to IR, was straightforward with employees happy to contact IR to provide details.

“We support this requirement being included in legislation. Due to the sensitivities in the employer collecting this information from an employee, if this was not included as a legislative requirement, employees may otherwise refuse to provide this information.”

“We are not comfortable with the proposal that employers should obtain date of birth information and provide it to Inland Revenue. Age is a sensitive issue for some and age discrimination still exists in New Zealand workplaces. IR will already have the employee’s name and IRD number in order to verify their identity. If a birth date is also needed for verification purposes, we recommend the employee provide this directly to Inland Revenue.”

Compliance cost implications of provision of PAYE information at the time staff are paid

The consultation sought information on the compliance cost implications of using software to send payroll information at the time staff are paid and whether it would increase or reduce such costs and if possible quantify that effect.

Summary of comments

The responses were mixed. Some submitters, particularly those who made on-line comments (assumed to largely be small to medium businesses) considered pay day reporting would increase compliance costs because of the need to check information on a pay period basis rather than monthly and / or the need to purchase payroll software. This concern was reflected in a number of written submissions also.

A number of submitters were comfortable with their current process and did not want to change. A number of submitters that currently use payroll software supported the proposal. Again some submitters thought that this should be optional.

Some submitters noted that there would be a one-off cost in upgrading systems to allow for pay-day reporting, but considered on-going compliance costs would reduce. Others considered the compliance cost savings to be quite small as the transmission of data is only a small part of the payroll process.

“In our view, the more frequently the information is required, the more likely that there will be additional cost to employers. While electronic transfer costs are low, the cost is in employee time required for compilation and verification. If Inland Revenue is prepared to relax the rules around penalties, this would reduce the costs because employers would be more confident to send information directly from the payroll system without incurring such high compliance costs in compilation and verification. One option would be to allow the information to be submitted on the following working day to allow time for the detection and correction of errors.”

“…Our current payroll software system cannot provide pay information to the IRD on a real time basis. The initial cost of upgrading/replacing software to enable this to occur would be substantial, however it would likely reduce ongoing compliance costs due to the reduction in errors and quicker amendment of incorrect tax and PAYE information held.”

“I think that this would increase compliance costs. It would also remove the internal process of checking for errors. If something was mis-entered in the pay run, for example, it can be corrected before the month end return to the IRD. Commonly, businesses perform reconciliations on a month end basis, to tie in with their management reporting, not after each payroll. Sending information to the IRD automatically after each pay run would therefore increase the possibility for error and also compliance.”

“It would reduce compliance costs because it would save having to reenter the same data on a different day to file with IRD. It saves double handling and is more efficient doing both tasks at the same time.”

“I think that submitting to the IRD every time we have a pay run increases compliance rather than decreases it.”

“…we would be disadvantaged straight away with extra compliance costs as we do not use a digital payroll system at present.”

Amending PAYE information

The consultation proposed that employer’s payroll systems calculate and submit amending data to Inland Revenue at the same time the changes are made to the employer’s own records.

Summary of comments

There was general support for using payroll software to amend payroll records and to send that information to Inland Revenue at the time the records are amended. Also there was support for the ability to correct errors in a subsequent period as is the case for other taxes such as GST. There was no consensus on which option should be chosen regarding the method for amending PAYE information.

“We believe this would be an advantage.”

“The majority of our members were indifferent as to which option is selected. We expect that provided whichever option is selected, the process should be automated within the payroll software, and therefore it should not make a significant difference to employers as to what option is selected.”

“The proposal to expand s 113A of the TAA to allow corrections of PAYE errors in the next period is welcome and could provide sufficient relief in many cases… we doubt that change would provide a complete solution, particularly where errors or adjustments (increasing or reducing tax payable) may not become apparent until some pay periods later.”

“Automated corrections would be great.”

Information provided to other agencies

The discussion document asked whether submitters provide information to other government agencies that they think would more appropriately be provided to and passed on by Inland Revenue as part of the PAYE information process.

Summary of comments

There was marginal support for this, however it was noted that other Government agencies’ officers must be subject to the same secrecy requirements as IR officers.

“We believe there still needs to be controls on information flows from Inland Revenue to other government departments for privacy reasons. Information from Inland Revenue should be available to other government agencies on a need basis only, especially where it is individual information. If a person is applying for social assistance or for income related payments from ACC, it is appropriate for Inland Revenue to release income information to the particular department and for this purpose. There should still be restrictions on the release of income information to other government departments. For example, in our view IR should not be allowed to release information that would result in it being required to police legislation and policy in relation to pay rates (i.e. compliance with minimum wage rules), working hours and secondary jobs.”

“Could the IRD please also share data with Statistics New Zealand. Their quarterly employment surveys are a complete waste of our time given the government already has this information through the PAYE system.”