NZ Payroll Presented by Jackie Williams C.P.S. The Association for Payroll Specialists
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NZ Payroll Presented by Jackie Williams C.P.S. The Association for Payroll Specialists
Summary of topics to be covered: • New guidelines for the Holidays Act 2003 • Payday reporting – coming in 2019 • Shift cancellation (notification and compensation) • Taxation of employee share schemes • Parental leave changes • Changes regarding schedular payments
UNDERSTATEMENT OF THE YEAR! "It’s well known that Holidays Act compliance is difficult for many businesses. There are differing interpretations of the Act that affect how organisations calculate leave balances.”
Holidays Act 2003
Guidance on annual holidays & related provisions
• Detailed definitions:
• Otherwise a working day
• Employment agreement
• Discretionary payments
• Gross earnings
• Ordinary weekly pay (OWP)
• Key messages for employers
Definition of “otherwise a working day” An otherwise working day is a day that the employee would otherwise have worked, but for the day being: • a public holiday • a day the employee was sick or bereaved • taken as an alternative holiday • taken as an annual holiday.
Definition of “otherwise a working day” If it is unclear whether a day is an OWD, the Act requires that the employer and employee must take into account the factors listed below with a view to reaching agreement on the matter: • employment agreement • work patterns • any other relevant factors, (see next slide)
If you are unsure you can use the otherwise a working day calculator
Example – otherwise a working day for a CASUAL employee on a roster Result = “otherwise a working day”
Example – “otherwise a working day” for a CASUAL employee not on a REGULAR roster Result = “Possibly otherwise a working day”
What is the entitlement for annual holidays under the Act? All employees (including full-time, part-time, fixed term and casual employees) are entitled to 4 weeks of annual holidays after the completion of 12 months of continuous service. Fixed-term and casual employees may get annual holidays on a ‘paid as you earn’ basis, however this cannot be forced upon an employee.
What is the entitlement for annual holidays under the Act? This period of continuous employment includes any period during which the employee was: • on paid holidays or leave • on parental leave (including unpaid parental leave) • on volunteers leave • receiving weekly compensation; or • on unpaid sick leave or unpaid bereavement leave; or • on unpaid leave for any other reason for a period of no more than 1 week; • But unless otherwise agreed, does not include any other unpaid leave
How are annual holidays paid when they are taken? Annual holidays are paid at the greater of Average Weekly Earnings (AWE) or Ordinary Weekly Pay (OWP): What are Average Weekly Earnings (AWE)? “Gross earnings” for the 52 weeks prior to leave being taken, divided by 52 “Gross earnings” are based on the definition in Section 14 of the Holidays Act 2003 Note: This is a rolling 52 weeks average
Which types of leave require the calculation of “gross earnings” per the Holidays Act 2003 The MBIE has also clarified which types of leave require the calculation of “gross earnings” as defined under Section 14 of the Act. “Gross earnings” are used to determine, among other things: • the four week average Ordinary Weekly Pay (OWP) when needed for calculating annual holiday pay • Average Weekly Earnings (AWE) in the calculation of annual holiday pay • Average Daily Pay (ADP) when needed for calculating pay for BAPS leave • eight per cent PAYG • termination pay.
What is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
SALARY & WAGE PAYMENTS:
Salary or Wages X
Overtime X
Taxable non-reimbursing allowances X
Shift cancellation compensation X
Cash value of board and lodgings X
Payments for keeping in touch days (while on
X
Parental Leave)What is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
SALARY & WAGE PAYMENTS (Continued):
Statutory “travel between clients” payments
X
(time spent in travel)
Statutory “travel between clients” payments (costs
X
related to travel)
LEAVE PAYMENTS:
Statutory annual holidays or BAPS leave taken
X
Additional contractual annual holidays or BAPS leave
X
taken
Contractual long service leave taken or paid out
X
during employment
Volunteer’s leave payments XWhat is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
CASHED UP HOLIDAY/LEAVE PAYMENTS:
Cashed up alternative holidays X
Cashed up annual holidays X
Cashed up annual holidays above the statutory
X
minimumWhat is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
BONUS/COMMISSON:
Contractual incentive or productivity payments X
Contractual commission payments X
Truly discretionary payments (definition next slide) XWhat is a “discretionary” payment according to the Holidays Act 2003? One of the things that the MBIE have clarified in the new guidelines is the definition of a discretionary payment: “Listed in the exclusions (from gross taxable earning) are ‘discretionary payments’. It is important to understand that ‘discretionary payments’ have a special meaning under the Act. If an employer is bound by the terms of the employment agreement or some other agreement such as the rules of a commission scheme, to make a payment to the employee – even if the amount is discretionary (and could be zero) and/or certain conditions must be met before it is paid – it is not a discretionary payment.”
What is an “employment agreement” according to the Holidays Act 2003 Another of the terms that has been clearly defined is what is considered an employment agreement: Employment agreement’ should be read broadly to include all documents and other agreements that form part of the contractual agreement between the employee and employer. Agreements need not be written down, they may also be verbal or created by the conduct of the parties.
What is an “employment agreement”
according to the Holidays Act 2003
According to the guidelines, an employment agreement includes
(but is not limited to):
• an offer of employment,
• an individual employment agreement,
• a collective agreement and
• additional agreed terms and conditions not inconsistent with the
collective agreement”What is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
OTHER BENEFITS:
Employer contribution to super scheme X
Employee share benefits X
Insurance benefits X
From April 2017 ESS benefits can be taxed through the payroll, however
providing shares does not constitute a “payment” and therefore it is
unlikely that you need to include the value of the shares in “gross
taxable earnings” for the purpose of calculating holiday pay. It is a
complex area so it is better to seek legal advice on this one.What is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
EMPLOYER ACC PAYMENTS:
First week of ACC payments X
Payment of sick leave used to top up first week or
X
other ACC payments
Weekly ACC compensation beyond the first week of
X
compensationWhat is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
COSTS PAYMENTS:
Reimbursement of actual costs incurred by employee
X
in the course of their employment
Payment of a reasonably assessed amount to
reimburse for costs incurred by the employee in the X
course of their employmentWhat is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
TERMINATION PAYMENTS:
Payment in lieu of notice X
Contractual retirement payment X
Contractual payment in lieu of long service leave X
Contractual redundancy compensation X
Non-contractual long service leave X
Non-contractual retirement or redundancy payments XWhat is included in “gross earnings” under
Section 14 of the Holidays Act 2003
Payment Type Include Exclude Seek
Advice
TERMINATION PAYMENTS:
Contractual payment of bonus or commission X
Payment of public holidays occurring after termination
but during the period of the employee’s remaining X
annual holidays entitlement
Settlement payment
X
(reflecting contractual entitlements)
Additional monetary payment on settlement
X
(not reflected in contractual entitlements)
Section 123 “Hurt & Humiliation” Settlement XWhat is included in “gross earnings” under Section 14 of the Holidays Act 2003 Note about contractual redundancy payments: • This is not straightforward and courts have not yet considered this matter • MBIE’s position is that redundancy is not included in “gross taxable earnings as it is compensatory in nature and so not “earnings”. • However, they suggest that in order to minimise risk of non- compliance you should consider including this in gross taxable earnings.
How are annual holidays paid when they are taken? Annual holidays are paid at the greater of Average Weekly Earnings (AWE) or Ordinary Weekly Pay (OWP): What are Average Weekly Earnings (AWE)? “Gross earnings” for the 52 weeks prior to leave being taken, divided by 52 “Gross earnings” are based on the definition in Section 14 of the Holidays Act 2003 Note: This is a rolling 52 weeks average
Annual
Regular Regular Regular
Salary/Wages Bonus TOTAL
Allowance Overtime Commission
(Contractual)
April 2017 $4,000 $200 $400 $350 $4,950
May 2017 $4,000 $200 $300 $350 $4,850
June 2017 $4,000 $200 $400 $350 $4,950
July 2017 $4,000 $200 $350 $350 $4,900
Aug 2017 $4,000 $200 $400 $350 $4,950
Sept 2017 $4,000 $200 $300 $350 $4,850
Oct 2017 $4,000 $200 $100 $350 $4,650
Nov 2017 $4,000 $200 $200 $350 $4,750
Dec 2017 $4,000 $200 $300 $350 $4,850
Jan 2018 $4,000 $200 $450 $350 $5,000
Feb 2018 $4,000 $200 $400 $350 $4,950
Mar 2018 $4,000 $200 $300 $350 $10,000 $4,850
TOTAL $48,000 $2,400 $3,900 $4,200 $10,000 $68,500
SO…If annual holidays start 1 April 2018, then AWE = $68,500 divided by 52 = $1,317.31 per week of leaveWhat is included in “Ordinary Weekly Pay” (OWP) under the Holidays Act 2003? Ordinary weekly pay (OWP) is the amount the employee is Normally paid each week. It includes: • regular allowances, such as shift allowances • regular productivity or incentive-based payments (including commission or piece rates) • the cash value of board or lodgings provided by the employer • regular overtime payments
What does “regular” mean when determining OWP? The question can be rephrased as: “Is there a normal/usual amount that the employee receives each/most weeks? Anything that is likely to occur weekly, fortnightly, or otherwise regularly within a four week cycle (or each month for a monthly pay), should generally be included even if the amount varies.
What does “regular” mean when determining OWP? Quarterly or annual bonus would not be included in the calculation for ordinary weekly pay because it is not a regular payment. However, it would be picked up in the calculation for average weekly earnings. The calculation for average weekly earnings has different criteria than the ordinary weekly pay calculation.
What is included in “Ordinary Weekly Pay” (OWP) under the Holidays Act 2003 So….OWP excludes: • Productivity, incentive-based and overtime payments if these are not a regular part of the employee’s pay • Any one-off or exceptional payments • Any discretionary payments the employer is not bound under the terms of an employment agreement to pay • Employer superannuation contributions
When do I use the four week average for
determining OWP?
If there is no normal/usual weekly amount because:
• Hours vary from week to week
• Amounts vary from week to week (e.g. with overtime if there are
large fluctuations)
• If commission is earned from activity each week (regardless of
when it is paid) but the amount varies unpredictable from week
to week.
Note:
• This may involve taking the “money earned” approach rather than the “money
paid” approach for the calculation.
• It is important to be consistent in the approach that you are using to maintain
accuracy of calculationHow do I calculate the four week average for determining OWP? • Go to the date of the last pay period before the holiday is taken (do not count the date of a one off, irregular payment) • Go back four weeks from that date (or a month if it is a monthly pay period) • Determine the gross earnings for that period (deduct payments that are excluded from the definition of OWP) • Divide the answer by four
Example: Four week calculation for OWP
Pay Item W/E W/E W/E W/E Total Excluded
07/04/2017 14/04/2017 21/04/2017 28/04/2017 Included in from OWP
OWP
Wages $1,000 $1,000 $1,000 $1,000 $4,000
Regular
$50 $80 $80 $90 $300
Overtime
Regular
$50 $50 $50 $50 $200
Allowances
Regular
$100 $90 $85 $75 $350
Commission
Annual bonus
$2,500 $2,500
(contractual)
TOTAL OWP $4,850
$4,850 divided by 4 = $1,212.50 Ordinary Weekly Pay (OWP),
annual bonus is excludedWhat is a “week” for an employee under the Holidays Act 2003? • Annual holidays are based on weeks in the Act. Each employee regardless of employment basis is entitled to four weeks after each 12 months of continuous employment. • An employee’s entitlement should be determined according to their work pattern at the time the holiday is requested. • As most payroll systems are based on hours it is essential you monitor changes in your employee’s work patterns, and adjust annual holiday balances accordingly. Does your payroll system allow for adjustment to hours of leave where hours are variable?
Key messages for employers from the Ministry of Business, Innovation and Employment (MBIE)
Key messages for employers from the Ministry of Business, Innovation and Employment (MBIE)
Key messages for employers from the Ministry of Business, Innovation and Employment (MBIE)
Key messages for employers from the Ministry of Business, Innovation and Employment (MBIE)
Recent penalties issued for breaches of employment law
2 Cheap Cars serious breaches of $70,000 in penalties
(2nd hand car dealer) minimum wage, holiday pay, $250,000 arrears
and record keeping
Precise Contracting Limited failed to provide 83 $40,000 in penalties
(labour contracting employees with minimum $33,081.70 arrears
business) wage, correct holiday pay, or
keep proper employment
records.
Direct Auto Importers (NZ) claimed that the employees $65,000 in penalties plus
Ltd Cheap Deals on Wheels were contractors and denied $17,996 in arrears
Limited he owed them their
(car companies) minimum entitlements
Tandori King – Timaru the employer withheld final $13,865.21 ($6,000 in
(indian restaurant) holiday pay from two of the penalties and $7,865.21
employees when they left, arrears)
and paid another below the
minimum wageRecent penalties issued for breaches of employment law
Wyatt Farm The employer could not $7,000 penalty
(dairy farm) demonstrate they had $1,550.84 arrears
provided time and a half to
their employee for working a
public holidays
BBS Horticulture Limited failing to retain employment $57.000 penalty
(labour hire company) agreements, or keep records $1,818.02 arrears
of wage, time, holiday or
leave,
D K Transport Ltd failing to pay minimum wage, $40,000 penalty
(courier) provide written employment $23,621.02 arrears
agreements, deducting wages
without written consent,
withholding wages for public
holidays, and failing to keep
accurate records.Payday reporting proposals • Proposals that would require employers above the electronic filing threshold to report PAYE information to Inland Revenue every payday are currently moving through the parliamentary process. • From 1 April 2019, employers and payroll intermediaries would no longer be required to file an employer monthly schedule (EMS). Instead they’ll file every payday through their payroll software.
Payday reporting proposals • IRD will be ready to accept PAYE information on a payday basis from 1 April 2018 but under the proposals employers won’t be required by law to provide it until 1 April 2019 • It is anticipated that employers will have the option of paying their PAYE and related deductions to Inland Revenue on payday however they will not be required to do so.
Payday reporting proposals • The Government is not proposing to require all employers to use payroll software but it is proposing to reduce the electronic filing threshold from $100,000 of PAYE and Employer Superannuation Contribution Tax (ESCT) a year to $50,000 a year. • New employee information could be sent direct from the payroll system or through Inland Revenue’s improved e- services.
Shift cancellation Employers will be required to either: • give employees the agreed reasonable notice before cancelling a shift, or • provide them with reasonable compensation for late notice, before the shift commences. • If you never need to cancel or shorten shifts, then you don't need to include this clause in your agreement. • If your business is in an industry where shift cancellations can happen, e.g. because of the weather — then you must include this in your agreement.
Also, if you cancel a shift as it begins, or cut it short, those rostered on should be paid what they would have earned. You cannot ask an employee to agree to anything less than this in the employment agreement.
Employee Share Schemes (from 1 April 2017) From 1 April 2017, you can choose to tax employee share scheme (ESS) benefits as "extra pay". You can choose not to deduct any tax. However, in most cases you'll still be required to include the taxable value of the shares for each employee on the Employer monthly schedule
Employee Share Schemes (from 1 April 2017) If you choose not to deduct tax on benefits an employee receives under a share purchase agreement, the obligation to pay tax remains with the employee. Commissioner's Statement (CS) 17/01 Determining "value" of shares received by an employee under a share purchase agreement provides more information on how you can value shares and determine the value of an employee share scheme benefit.
Employee Share Schemes (from 1 April 2017) Employee share scheme (ESS) benefits will be taxed as an extra pay/lump sum amount. ESS benefits are income for the purposes of: • student loan deductions • child support payments, and • Working for Families Tax Credits ESS benefits aren't liable for KiwiSaver or ACC.
Employee Share Schemes (from 1 April 2017) Example: In April 2017 Janet receives an ESS benefit of $2,500. She has: • a tax code of M SL • a monthly salary payment of $7,500 • KiwiSaver contributions at 3% • an ESCT rate of 33% • Extra pay tax rate has been calculated as 33%
Employee Share Schemes (from 1 April 2017) M SL Tax Code (Monthly Salary) WITHOUT SHARES Gross taxable salary $7,500.00 PAYE deduction $1,822.55 KiwiSaver employee deduction @ 3% $225.00 Student loan deduction $708.64 Take home pay $4,743.81 Net Compulsory employer contribution (CEC) $150.75 Employer Superannuation Contributions Tax (ESCT) $74.25
Employee Share Schemes (from 1 April 2017)
M SL Tax Code (Monthly Salary) SHARES ARE TAXED
Gross taxable salary $7,500.00
PAYE deduction $1,822.55
PAYE deduction on ESS of $2,500
$825.00
taxed as an extra pay @ 33%
KiwiSaver employee deduction @ 3% $225.00
Student loan deduction
$1,008.64
on $10,000 ($7,500 salary + $2,500 ESS)
Take home pay $3,618.81
Net Compulsory employer contribution (CEC) $150.75
Employer Superannuation Contributions Tax (ESCT) $74.25Parental Leave (Changes from 1 June 2017) • Employees who want to receive parental leave payments can now use their paid leave (e.g. annual leave, alternative days, special leave or time off in lieu) first. • In that situation their parental leave payment period can start at the end of their leave, even if it is later than the child’s arrival or due date. • Before 1 June 2017, the parental leave payment period couldn’t start later than the child’s arrival.
Parental Leave (Changes from 1 June 2017)
Annual Annual
Holidays Holidays
commence end
01/04/2017 28/04/2017
DUE DATE Paid Parental
of baby Leave (PPL)
14/04/2017 commences
29/04/2017
18 weeksParental Leave (Changes from 1 June 2017) • Before 1 June 2017, if a person has a preterm baby and they return to work after they start getting a preterm baby payment or parental leave payment, their payments would stop and they would lose any remaining preterm payments. • From 1 June 2017, a parent with a preterm baby can still get their parental leave payments when they go back on parental leave, as long as it’s no later than the original expected date of birth. Eligibility: You may get preterm baby payments in addition to parental leave payments if: • you are caring for a baby who was born live before the end of 36 weeks’ gestation, • The preterm baby payments are available for a continuous period of up to 13 weeks. • It is paid at the same rate as the parental leave payment.
Parental Leave (Changes from 1 June 2017)
Original DUE
Baby born 7 DATE of the
weeks early While baby baby
Pre-term in Neo-natal 20/05/2017
baby employee Paid
payments returns to Parental
commence work Leave (PPL)
01/04/2017 29/04/2017 commences
Pre-term Works from Paid
baby 29/04/2107 Parental
payments to Leave (PPL)
end 19/05/2017 ends after
28/04/2017 (3 weeks) 14 weeks
(after 4 (original 4
weeks) weeks pre-
term leave
deducted)Changes regarding schedular payments
Changes to business tax rules contained in the Taxation
(Business Tax, Exchange of Information, and Remedial
Matters) Act 2017, enacted on 21 February 2017 include
• allowing contractors subject to the schedular payment rules to
elect their own withholding rate (Tax rate notification for
contractors (IR330C) form)
• extending the schedular payment rules to contractors who work
for labour-hire firms;
• allowing contractors not covered by the schedular payment rules
to enter voluntary withholding agreementsChanges regarding schedular payments
Changes regarding schedular payments
NEW CATEGORIES OF SCHEDULAR PAYMENTSANY QUESTIONS?
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