Manual payroll services are a time- consuming burden on any company, but with trades in New Zealand, it is a peculiar and tricky monster. You are not working normal 9-5 hours. You have mixed hours, site to site commuting and a maze of allowances and reimbursements. It does not merely waste your time but also may result in hefty fines and demands to back pay and loss of reputation.
This tutorial is the ultimate guide to getting to grips with payroll in your NZ trades enterprising. We will deconstruct the rules you can never break, discuss the commonest errors and lay out in a step by step, easy to understand guide what is right so you can get it wrong less frequently and focus more on doing things using the tools and less on the paperwork.
Section 1: The Non-Negotiable Rules of NZ Payroll
Before you can build an efficient payroll system, you need a solid foundation of understanding. Here’s a breakdown of the critical legal requirements you must follow.
The Holidays Act 2003: Your Biggest Challenge
The Holidays Act is a notoriously tricky thing, and many trades businesses fall foul of it. The most important aspect that is affecting the tradies is the calculation of relevant daily pay or average weekly earnings of the variable hour employees.
- Annual Leave: Employees would be entitled to 4 weeks paid annual leave when an employee has been continuously employed with the company to the completed 12 months. In a trading business with inconsistent periods, the salary level during this leave should be their higher than their normal weekly pay rate or average weekly wages received over the 12 months before the leave. This is an important mark which needs to be properly documented.
- Public Holidays: In the event, a public holiday occurs on a day that would have otherwise been a working day to your employee, he/she would be entitled to receiving a paid day off. In the event that they also work on that day they should get at least a time-and-a-half and an alternative holiday (an alternative day). In the case of such irregular schedules of employees, it may be difficult to spot an otherwise working day. Here is where timesheets in detail become priceless.
- Sick Leave and Bereavement Leave: six months of continuous service will entitle the worker to 5+ days of sick leave followed by three days of bereavement leave. They are paid on this leave in amount corresponding to their relevant daily payment.
Minimum Wage Requirements
It is the case with the minimum wage in New Zealand which is considered once a year. The rates are so far:
- Minimum Wage Rate for An Adult: 23.50 dollars an hour. This is applicable to the majority of the employees who are 16 years and above.
- Starting out and Training Minimum Wage: 18.80 USD an hour. This is the case with certain category of workers like the workers between the age 16-17 years, who are not employed above six months in the same company, or a person in an industry training course.
It is important to be at par with these changes by updating your payroll to prevent cases of underpayment.
Payday Filing and the IRD
Days when the Employer Monthly Schedule (IR348) was used are at an end. Payday Filing is mandatory to NZ employers today.
- What`s it? It is something we do at the end of every pay day, of filing our employment details (PAYE, KiwiSaver, etc.) with Inland Revenue (IRD).
- At what time to file? When you file electronically (and you have to do that unless you prove that you cannot do so) it must be filed within two working days of a payday. Those who file by paper (use this only when your business makes less than $50,000 in annual PAYE deductions) will have 10 working days.
- So why is it? Payday filing makes sure that data on tax and entitlement of employees is current and correct. Not submitting the filing in a timely manner may attract fines and interests by the IRD.
Section 2: Common Payroll Pitfalls for Tradies (And How to Avoid Them)
For trades business owners, certain payroll mistakes are more common than others. Here’s what to watch out for.
Mistake 1: Misclassifying Employees vs. Independent Contractors
It is probably the most widespread and expensive error in the trades business. An independent contractor pays his or her tax, KiwiSaver, and ACC. The employer takes care of these obligations on behalf of an employee.
- The Trap: Most businesses in the trade treat new hire as a subcontractor as this evades the administration and tax liability. Yet, should such an individual have regular shifts, work with your equipment, and be guided by you, he is most likely to be considered an employee by the legal framework.
- The Fallout: In the event that the Employment Relations Authority (ERA) decides that a worker was an employee you will be liable to pay unpaid taxes, holiday pay, KiwiSaver contributions, and other entitlements typically with huge repercussions. Another case was a dairy farmer who was fined more than 99,000 dollars because he did not maintain the records and underpaid the employees.
Mistake 2: Poor Record-Keeping and Inaccurate Timesheets
For many tradies, timesheets are scribbled notes on a scrap of paper. This makes it almost impossible to accurately calculate entitlements under the Holidays Act.
- The Trap: Inaccurate or missing records for hours worked, leave taken, and allowances paid.
- The Consequences: This is a key reason for Holidays Act non-compliance. Without a clear record, it’s difficult to prove you’ve paid the correct amount for leave, public holidays, or overtime. The law requires you to keep detailed wage and time records for seven years.
Mistake 3: Incorrectly Calculating Overtime and Allowances
While there is no legal requirement for overtime pay in NZ, if your employment agreement specifies a higher rate for hours worked beyond a certain threshold, you must pay it correctly. The same applies to allowances.
- The Trap: Calculating allowances as a flat rate without considering whether they are taxable or non-taxable, or simply forgetting to apply the correct overtime rate for extra hours worked.
- The Consequences: Underpaying an employee can lead to back-pay claims and penalties. It can also be considered a breach of their employment agreement.
Section 3: Beyond the Basics: Allowances and Reimbursements
Trades work often involves payments that go beyond the standard hourly wage. Understanding the tax implications of allowances and reimbursements is crucial for both you and your employees.
The Golden Rule: Taxable vs. Non-Taxable
The major difference lies in the fact that it could be a reimbursement of a work-related expense or adding more to the salary of the employee.
- Taxable Allowances: This type of payment compensates, or supplements, the wages of an employee. You have to count them on your PAYE.
- Examples: A recurrent allowance provided you use your own tools which is not attributable to any identified expense; a blanket clothing allowance which is not due to a compulsory uniform.
- How to Handle: treat it like reg wages. Pay As You Earn (PAYE), KiwiSaver and ACC on the amount.
- Non-Taxable Allowances (Reimbursements): These are the allowances paid by the employer to employees to compensate for some definite work-related costs that an employee has incurred.
- Examples: Paying the actual price of fuel, used on work trip by an employee; paying an employee a certain amount of safety purchase made by the employee with a receipt; paying an overtime meal allowance in case the employee has purchased a meal during work outside the typical work hours.
- How to Handle: On these you do not pay PAYE. But you need to be able to show definite records (e.g. receipts) that this money was paid as an immediate reimbursement of a business expense.
Setting It Up in Your System
Your payroll system must be set up to make sure you are compliant, and your employees are receiving the right pay. This means:
- Crystal clear categories: Establish unique pay codes to categorise various kinds of allowances and reimbursements.
- Built in Calculations: The payroll package should automatically have pay as you earn that can be charged on taxable allowances and tax-free reimbursements excluded.
- Receipt Management: Have a system in place (most payroll software has this included) where employees can give in their receipts that they are looking to be reimbursed, and this gives you a clear audit backing.
With just a little due diligence to learn those basics about how to best apply them to your specific situation, you can create an effective, efficient process that will take care of your business and your employees and allow you to invest precious time back into the activity you enjoy.