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How to comply with tax obligations as an employer

Introduction

Employers have a number of tax obligations relating to their employees, principally involving the PAYE ("Pay As You Earn") system (see How to: Income tax for wage and salary earners). Below is a summary of an employer's obligations.

PAYE deductions

PAYE must be deducted from salary or wages paid to each employee. The employer collects this deduction on behalf of the IRD, acting as their agent. These deductions must be paid directly to the IRD.

When a new staff member begins, the employer must obtain a completed tax code declaration form (IR330), showing the appropriate tax code for that employee. Employers are required to keep a copy of this form with their business records.

On each pay-day the employer is required to deduct the appropriate amount required for PAYE tax. This amount must take into account any overtime and shift work.

Unless you are a large employer you will be required to pay the PAYE deductions to the IRD once a month. If you are a large employer you will be required to pay this twice a month, by the fifth and the twentieth. Each payment should be accompanied by a remittance certificate (IR345 or IR346). In addition, an employer monthly schedule must be submitted by the twentieth of each month.

Contract workers

If you employ contract workers, you must deduct withholding tax from payments made to these workers. You must ensure that these workers fill in a tax declaration code (IR330) (in which case tax is paid at a rate that depends on the particular category of work) or else deduct withholding tax at the no-declaration rate.

Accident insurance

Employers are required to purchase accident insurance to cover employees' work-related injuries.

Employers are also required to pay a "residual claims levy". The purpose of the levy is to fund the continuing cost of work-injury claims made before 1 July 1999 and non-work claims made before 1 July 1992. Employers must pay this levy annually to the IRD by 31 May, using an IR68A form.

Miscellaneous

There are a number of miscellaneous deductions that may apply, depending on the circumstances of the employee. This could include:

  • Child support deductions – If the employee owes any child support payments, these must be paid to the IRD by the twentieth of the month.
  • Specified superannuation contribution withholding tax (that is, tax paid on employer contributions to employee superannuation funds) – If this is payable, this must be paid in addition to the PAYE deduction by the same due date as for PAYE.
  • Kiwisaver - from July 1, 2007, new employees may qualify for automatic enrolment into Kiwisaver. Existing employees can also opt in. Employers must deduct KiwiSaver contributions at the correct rate and forward them to the IRD by the due date along with PAYE payments. Employers don't need to promote KiwiSaver to employees, but may make employer contributions on behalf of employees or can continue to offer an existing superannuation scheme to staff. Employees can choose one of only two contribution rates: 4% or 8% of their gross pay. For the purposes of KiwiSaver deductions, salary and wages are the same as defined in the Employer's guide (IR335).
  • Fringe benefit tax – If relevant, the employer must complete an IR405 form showing the fringe benefits granted during the quarter and the tax calculated to be payable for that period. This form must be filed quarterly by 20 January, 20 April and 20 October. Some employers are, however, entitled to account for fringe benefit tax on an annual basis.

Employers ceasing business

An employer that intends to cease to carry on business must file a business cessation form (IRD315). This must be filed by the fifteenth of the month preceding the month in which the employer ceases business.

Cautionary notes
  • As with all tax law, the tax responsibilities of employers are frequently complex and technical. Because the penalties for non-compliance can be quite severe, it is advisable to consult either a tax lawyer or an accountant, or both.

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