Under legislation introduced in 2018, employers in New Zealand will be required to change the way they file their payroll with Inland Revenue (IR). The new payday filing system has actually been in place, and available to use, since 1 April 2018, but will become mandatory for all New Zealand businesses in 2019 - and represent one of the most significant changes to the country’s tax regime in a generation.
Modernising the Payroll System
Inland Revenue is framing the shift as a much-needed modernisation of the way businesses submit pay information, and an opportunity to make the process simpler, more accurate, and more efficient for everyone. Although many employers have raised concerns about their increased compliance burden, Inland Revenue is keen to point out that payday filing will form part of an automated tax system and should, in theory, reduce common administrative problems.
Essentially integrating both payroll and tax reporting obligations into one process, payday filing is aimed at saving employers time and effort in the payroll department while offering employees a way to build a real time picture of their tax obligations - a system similar to Australia’s recently-introduced Single Touch Payroll. Gaye Searancke, Deputy Commissioner of Customer Compliance at New Zealand’s Inland Revenue has stated that the rewards offered by payday filing “are worth the effort.”
So, What Do You Need to Know?
With the mandatory Payday Filing deadline approaching, it’s time for New Zealand’s employers to ensure that their business has prepared its payroll department, and its employees, for the change...
What is payday filing?
Under current system, New Zealand’s employers file their PAYE information with Inland Revenue on a fixed monthly schedule throughout the year. Under the payday filing system, they will instead report that information to Inland Revenue every time their employees are paid.
By filing each payday, as opposed to every month, the idea is that tax and pay records can be kept more up to date and tax errors - such as tax credit overpayment - eliminated.
Who needs to use payday filing?
Although the system is currently opt-in, from 1 April 2019 every New Zealand employer must use payday filing. Employers who pay more than $50,000 PAYE and Employer Superannuation Contribution Tax (ESCT) annually must file using either their payroll software or through the myIR platform. Employers paying less than $50,000 have the option of filing online or via paper forms.
When will I need to file?
Payday filing needs to be made within two working days of a payday or pay ‘event’ - regardless of whether you pay your employees monthly or fortnightly.
How will the payroll process change?
The impact of payday filing on your existing pay process will depend on whether you’re using automated payroll software. If so, you can incorporate your payday filing information into that electronic process with the click of a mouse - which will actually reduce the administrative effort involved.
If you’re choosing to file payroll through your myIR account, the process will still take place electronically. Bear in mind that the ir-File service within myIR is being discontinued, so you’ll no longer be able to file Employer Monthly Schedules or Employer Deduction forms this way. Instead you’ll need to use the Payroll Returns account function which will appear in myIR from 28 February 2019.
What do I need to do now?
The most important part of preparing for payday filing is checking that your payroll software can handle the new functionality. If you use a payroll provider, you should confirm that their software platform is similarly capable. If you’re using myIR to file, you should already be able to access payday filing functionality. If you’re an international employer with employees working in New Zealand, it’s vital that you take extra care to ensure your payroll meets necessary compliance standards.
For more information about payday filing in New Zealand, check out activpayroll’s New Zealand Global Insight Guide.