1 April 2012 Tax Changes: Overview for Employers
The Inland Revenue Department (IRD) has asked Federated Farmers to inform its members of a number of impending tax changes to employer superannuation contribution tax (ESCT) and student loans. These changes will take effect from April 2012 but we think it worthwhile for members to have plenty of notice so they can make appropriate arrangements.
ESCT
All employers’ superannuation contributions – including KiwiSaver and Complying Funds – paid to defined benefit funds for employees will be liable for employer superannuation contribution tax (ESCT) from 1 April 2012.
- The ESCT will need to be calculated:
- at the employee’s marginal rate, or
- you can treat your employer contribution as salary or wages (with the agreement of your employee).
- IRD will be updating its online PAYE calculator to reflect this.
- This was announced as part of Budget 2011. More information about other changes can be found on http://www.ird.govt.nz/changes/kiwisaver/budget-kiwisaver.html or call 0800 377 772
Student loans
If you have an employee with a student loan, some of the changes below will be variations to current processes, while others will be new rules you’ll need to be familiar with. Your employee will have to apply for the repayment deduction exemption and the special deduction rate if they want these to apply to their first pay period from 1 April 2012.
- Your employee must use a ‘SL’ repayment code regardless of their income, unless they’re exempt.
- The student loan deductions you make on their salary or wage every pay period will be treated as their repayment obligation, unless there’s significant over- or under-deduction. Make sure your deductions are correct and identified properly on the EMS.
- IRD may contact you and your employee and require you to make additional deductions if there’s a shortfall in your employee’s student loan deductions – you should use the ‘SLCIR’ repayment code on the EMS for this.
- Your employee may provide you with a repayment deduction exemption certificate which authorises you to not make student loan deductions on your employee’s salary or wage.
- Your employee may provide you with a special deduction certificate if you are their secondary employer - you should use the special (reduced) deduction rate for your employee’s student loan deduction.
- Your employee may ask you to make extra student loan deductions on top of their compulsory repayment deduction – make sure you use the ‘SLBOR’ repayment code on the EMS for this.
- If you use payroll software – your payroll provider will be providing updated software to enable these changes.
- More information about the student loan changes can be found on www.ird.govt.nz/studentloans or call 0800 377 772
In both cases, you need to upgrade your software by 1 April 2012 if you use a payroll package.
IRD will provide more information on how these specific changes impact you as an employer. IRD will also be working with software developer companies to amend their payroll and related products to enable these changes.
If you have any questions please contact IRD or your tax advisor.
Employment agreements required for all
From 1 July 2011 all employers must keep a copy of their employees signed employment agreements or current terms and conditions of employment or they may face a penalty action for a breach of the law. This applies to employers who may have hired employees on a verbal agreement or who do not have current up to date agreements in place.
Where an employer has given an employee an intended agreement the employer must retain a copy of the intended agreement even if the employee has not signed it or agreed to the terms and conditions.
The employer must keep the employment agreement or terms and conditions up to date and provide copies of these if requested by the employee.
There are certain clauses that must be included in an employment agreement. This includes the name of the employer and employee, a description of the work to be performed, the place of employment, times the employee is to work and the wages or salary, along with an explanation of services available for solving problems. Failure to incorporate these elements into an agreement may also result in a labour inspector taking a penalty action against an employer.
A full list of clauses that are required in an employment agreement is available on the Department of Labour’s website. Employers and employees may also choose to include additional clauses relating to minimum standards in employment law, or additional clauses that have been negotiated and agreed upon by both parties.
The Employment Relations Act 2000 also makes it clear that minimum employment standards must be met, such as an entitlement to four weeks annual leave. Even if they are not recorded in an employment agreement, they are still enforceable entitlements.
The Department of Labour has developed an Employment Agreement Builder to help you build your own employment agreement. Please note it is best practice to ensure that an employee indicates their agreement by signing their employment agreement before they start work.
For further information, visit the Department of Labour’s website or phone the Contact Centre on 0800 20 90 20.
Employment Agreement Questions
Q Do all employees need an Employment Agreement including part-time and casual staff?
A Yes. The Employment Relations Act 2000 has been amended to require that all employers must keep a copy of all their employees’ employment agreements or terms and conditions, no matter when they were employed or the nature of their employment.
Q Do employees that were employed before 2000 need an agreement?
A Yes, the amendment to the Employment Relations Act 2000 applies to all employment relationships and means that all employers must keep a copy of all their employees’ employment agreements or terms and conditions, no matter when they were employed.
Q Do we have to keep a record of terms and conditions and does it have to be signed?
A Yes.
Q If my employee hasn’t agreed to their employment agreement or terms and conditions, is it still enforceable?
A An intended agreement cannot be treated as the parties' employment agreement if the employee has not signed or not agreed to the terms and conditions in the intended agreement.
Q If an employee does not sign their employment agreement, and says or does nothing specifically to indicate they do not agree to it what should the employer do?
A The employer should enter into good faith negotiations to reach agreement. If agreement cannot be reached, the employer should record what happened and the outcome of the negotiations. A copy of the intended agreement must be retained on file along with the current terms and conditions of employment, signed or unsigned.
Q Do I need to draw up a new employment agreement each time we make a change?
A An employer needs to keep a signed, up to date employment agreement or the current terms and conditions of employment. Changes or updates to the terms and conditions in the employment agreement can be made to an existing employment agreement, provided both parties have agreed on the change/s and both parties signed or initialled the changes and dated.
Q Do I need to give the employee a copy of the employment agreement if they request it?
A If an employee requests a copy of their agreement or terms and conditions, the employer must be able to provide the employee with it.
Q If I make a job offer do I have to retain a copy of the intended agreement?
A Yes, where an employer has provided an employee with an intended agreement the employer must retain the intended agreement even if the employee has not signed it or agreed to the terms and conditions specified in the intended agreement.
Q What happens if I don’t keep a copy?
A From July 1 2011, labour inspectors will be able to seek a penalty against an employer who is in breach of legislation relating to employment agreements, including the requirement for all employers to retain a copy of the intended and current employment agreement or terms and conditions of employment, whether signed or unsigned. Employers will be given seven working days notice of to fix the breach. Where the breach is not remedied the inspector can take a penalty action in the Employment Relations Authority.
To build an employment agreement or to find out more about recent changes to the Employment Relations and Holidays Acts visit www.dol.govt.nz