PAYG for businesses.


14th March, 2018

What you need to know about PAYE for business

What you need to know about PAYE in the time that it takes to call your mum.

Before Mum’s had time to catch you up on the grandkids’ school play and Uncle Gerald’s hip replacement, we’ll take you through what you need to know about PAYE for businesses.

That’s about five minutes reading time.

Through your own employment history, you’re probably already familiar with Pay As You Earn (PAYE) tax deductions on your payslip.

As a small business owner, you have the additional responsibility of meeting these PAYE obligations through PAYE Withholding.

Here’s what you need to know about PAYE, as well as some helpful tips for keeping on top of it all.

What is PAYE Withholding?

Put simply, PAYE Withholding is a way for employers to collect income tax and the ACC earners’ levy from their employees and pay these directly to the Inland Revenue. The simplest way to do this is by taking out the tax from your employees’ wages using the appropriate tax code.

PAYE is also the mechanism used to collect payments and information for other income-related social policies like families tax credits, child support, student loan repayments and KiwiSaver contributions and ESCT (employer superannuation contribution withholding tax)

You may be responsible for collecting PAYE Withholding amounts from wages you pay to:

  • Your employees
  • Other workers, such as contractors, that you have voluntary agreements with

Once you’re set up PAYE is relatively simple. But remember that different rules can apply to some payments, like bonuses or retirement payouts, or to special types of workers. The amount of PAYE you deduct depends on the employee’s tax code and how much they earn, something you can calculate with the Inland Revenue’s PAYE/KiwiSaver deductions calculator.

Where to manage PAYE

First, make sure to register for a myIR account as it’s full of helpful online services for your business.

Before you are able to collect PAYE, you must first register as an employer either through myIR or by completing an Employer registration form (IR334).

Registering for PAYE is easy and can be done online on the Inland Revenue website.

Breaking down schedular payments

Formerly known as ‘Withholding Tax,’ schedular payments are payments made to contractors who perform certain activities. These payments are required to have tax deducted but they’re different to salary or wage payments.

The following types of workers/entities can receive schedular payments:

  • Self-employed contractors
  • Sole traders
  • Partnerships
  • Trusts
  • Companies operating in the agricultural, horticultural and viticultural industries
  • Companies paid under labour hire arrangement in the industry

Employees will provide their employers with a completed IR330C which will indicate the rate of tax to deduct from payments. The only workers on schedular payments that do not need to provide a IR330C are those with a certificate of exemption.

Employers are not responsible for making deductions from schedular payments on student loans, KiwiSaver or ACC levies.

Reporting options

As an employer with PAYE responsibilities, you must submit employer information to Inland Revenue.

From 1 April 2018, you can choose to submit these details either on a:

  1. Monthly basis
  2. Payday basis

If you choose monthly, you’ll need to submit an IR348 on the 20th of the month following the pay run and if you choose payday reporting you’ll need to submit an Employment information schedule instead.

Whichever reporting option you choose you’ll need to complete and send through an:

  • Employer Deductions (IR345) form to record and pay deductions, including ESCT, from your employees to the Inland Revenue. The due dates for payment and submitted the IR345 are:
    • Employers who deduct less than $500,000 PAYE and ESCT per year:
      • 20th of the month: for deductions made in the previous month
    • Employers who deduct more than $500,000 PAYE and ESCT per year:
      • 20th of the month: for deductions made between the 1st and 15th of the same month
      • 5th of the month: for deductions made between the 16th and end of the previous month

You are required to file your PAYE returns directly with Inland Revenue’s ir-File online service if you pay more than $100,000 a year in PAYE and employer superannuation contribution tax.

From 1 April 2019, payday reporting will be compulsory for all employers. You will be required to file online if you make PAYE/ESCT deductions over $50,000 a year (the equivalent of payment more than 10 full time staff on the minimum wage). If less than $50,000 you will have the option of filing on paper if you choose.

Payday filing streamlines the filing of PAYE information by removing the need for a reporting process separate from processing payroll. The good news is that you will be able to use your payroll software to talk directly to IR, so that PAYE information is reported as it is calculated each pay run.

This will save you time and help you meet your record keeping obligations by storing your Employment Information (EI) electronically for easy retrieval. It will also improve accuracy by providing more up to date information to IR so they can check the correct tax and entitlements are being paid throughout the year.

If you want to stay ahead of IR changes, MYOB Essentials already has the functionally to automate your PAYE payments and reporting, as well as wage payments to employees for you with MYOB PayAgent. See how it works and call us on 0800 60 69 62 to make sure it’s right for your needs.

Tips for managing PAYE

One of the biggest mistakes employers make when it comes to PAYE is not planning for it. Set aside the PAYE collected throughout the month so you’re not caught out when it’s due.

Even better, set up a separate bank account where you store your employees’ PAYE contributions as you go. Deposit PAYE payments in this account every time pay run.

To make it even easier, setup a further bank account to do the same with your GST withholding amounts. That way, all your tax payments are in their own place.

MYOB accounting tools can automatically manage your PAYE. This allows you to spend more time on your business and less time worrying whether you calculated PAYE correctly.

Find the right MYOB solution for your business here.

You can also find more tips on managing your PAYE processes here.

Top 3 takeaways

  1. As an employer, you are responsible for collecting PAYE contributions on behalf of your employees
  2. You must submit a monthly employer declaration (IR345) report to the IRD detailing anydeductions made for that period You must submit a monthly Employer Schedule (IR348) or Employer Information Schedule each payday
  3. Review your payroll system and processes now to avoid being caught out by payday filing changes. If it’s time to make the move to online payroll, check out MYOB Essentials for free

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