Understanding Your Payroll Obligations as an Employer
As an employer, managing payroll is one of your most critical responsibilities. Ensuring that your employees are paid correctly and on time is not only a legal requirement but also essential for maintaining a motivated and productive workforce. This article will guide you through the key payroll obligations you need to be aware of, tailored to the local market.
Setting Up Payroll
Registering as an Employer
Before you can start paying employees, you need to register as an employer with Inland Revenue. This involves obtaining an employer number and setting up a system to manage your payroll obligations, including PAYE (Pay As You Earn) and KiwiSaver contributions. You can register online through the Inland Revenue website.
Employment Agreements
Every employee must have a written employment agreement that outlines the terms and conditions of their employment, including pay rates, pay periods, and any deductions. Employment agreements are legally binding and must comply with the Employment Relations Act 2000.
Key Payroll Components
PAYE and Other Deductions
PAYE is a tax that you must deduct from your employees’ wages or salaries and pay to Inland Revenue. In addition to PAYE, you may also need to make other deductions, such as:
- KiwiSaver Contributions: Both employer and employee contributions are required unless the employee opts out. The standard employer contribution rate is 3% of the employee’s gross salary or wages.
- Student Loan Repayments: If your employee has a student loan, you must make deductions from their salary or wages to repay the loan.
- Child Support Payments: If required, you must deduct child support payments from your employee’s wages and remit them to Inland Revenue.
Minimum Wage Compliance
Employers must pay their employees at least the minimum wage, which is reviewed annually. There are different minimum wage rates for adults, starting-out workers, and trainees. It’s crucial to stay updated with the latest rates to ensure compliance.
Record-Keeping
You are legally required to keep accurate payroll records for at least seven years. These records should include details of hours worked, wages paid, leave taken, and any deductions made. Accurate record-keeping is essential for compliance and can help resolve any disputes that may arise.
Managing Leave and Holidays
Annual Leave
Employees are entitled to at least four weeks of paid annual leave after 12 months of continuous employment. You must pay employees their annual leave before they take it unless they agree to be paid in their regular pay cycle.
Public Holidays
Employees are entitled to paid public holidays if the holiday falls on a day they would normally work. If an employee works on a public holiday, they must be paid at least time and a half, and they may also be entitled to an alternative holiday.
Sick Leave
Employees are entitled to at least 10 days of paid sick leave per year after six months of continuous employment. Sick leave can be used for personal illness or injury, or to care for a sick or injured family member.
Bereavement and Family Violence Leave
Employees are entitled to paid bereavement leave and family violence leave. Bereavement leave is available for the death of an immediate family member, while family violence leave can be used if the employee or their child is affected by family violence.
Payroll Software and Automation
Benefits of Payroll Software
Using payroll software can simplify the payroll process, reduce errors, and ensure compliance with legal requirements. Payroll software can automate calculations for PAYE, KiwiSaver, and other deductions, generate payslips, and keep accurate records. Many payroll software options are available, including Xero, MYOB, and PaySauce.
Payday Filing
As of April 2019, employers are required to file employment information every payday instead of monthly. Payday filing involves submitting details of employees’ earnings and deductions to Inland Revenue each time you pay them. This can be done electronically through payroll software or manually through Inland Revenue’s online services.
Avoiding Common Payroll Mistakes
Misinterpreting the Holidays Act
The Holidays Act 2003 can be complex, and misinterpreting its provisions is a common mistake. Ensure you understand your obligations regarding leave entitlements and payments to avoid non-compliance and potential penalties.
Not Keeping Up with Legislation Changes
Employment laws and regulations are subject to change, and it’s essential to stay informed about any updates. Regularly review Employment New Zealand and Inland Revenue websites for the latest information on payroll obligations and compliance requirements.
Inaccurate Record-Keeping
Failing to maintain accurate payroll records can lead to compliance issues and disputes with employees. Ensure you keep detailed and accurate records of all payroll transactions, including hours worked, wages paid, and deductions made.
Seeking Professional Advice
If managing payroll feels overwhelming, consider seeking professional advice. Payroll specialists, accountants, and employment lawyers can provide valuable guidance and ensure your payroll processes comply with legal requirements. They can also help you set up efficient payroll systems and address any issues that arise.
Understanding and fulfilling your payroll obligations as an employer is crucial for legal compliance and maintaining a happy and productive workforce. By setting up a robust payroll system, staying informed about your obligations, and avoiding common mistakes, you can ensure that your employees are paid correctly and on time. Whether you choose to manage payroll in-house or seek professional assistance, taking the time to understand your responsibilities will benefit your business and your employees.