Don’t be caught out on holiday pay!


Holiday pay has been in the news recently and we know the labour inspectors from the Ministry of Business, Innovation and Employment will be checking that employers have been recording and paying entitlements correctly.

There are two ways of calculating holiday pay: it can be based on ordinary weekly pay at the beginning of the holiday, or average weekly earnings over the previous 12 months. The correct amount of holiday pay is whichever figure is the greater.

Where employees are permanently employed on a constant work pattern, working out their entitlement is easy. If you have employees working irregular hours, it can be tricky to ensure their entitlements are correct. It is vital to make sure your systems are set up to record all relevant information and that your payroll system uses correct formulas and definitions.

There must be an easier way…

With all the confusion it comes as no surprise that we have had a number of clients call us lately to ask if they should be looking at using a payroll system so I thought I would let everyone know what we have been telling clients.

With sick pay, holiday pay, termination pay, PAYE, student loans, and Kiwi Saver, deductions payroll can be a very complicated thing and if you get it wrong and miss a payment to Inland Revenue you are looking at a $250 late payment penalty plus the hassle of fixing up the mess. So using the right payroll system can save you a lot of time and stress.

Basically you have a few options

Do it all manually using the Inland Revenue calculators

Use a DIY payroll system that does the calculations for you and tells you how much to pay your staff and Inland Revenue – Xero payroll falls into this category

Use a full service payroll provider that does it all for you – we recommend SmartPayroll

Do it all manually using the Inland Revenue calculators
You use the Inland Revenue calculators to figure out how much you pay your staff and what you need to pay Inland Revenue for PAYE etc. You pay your staff and on the 20th of the next month you pay Inland Revenue the PAYE, and file two forms with Inland Revenue. If you have a login to Inland Revenue’s myIR you can file these electronically.

DIY payroll

There are a number of desktop and online systems including Xero and Thankyou Payroll. The systems provide a workflow that helps you manage paying staff and a calculator that works out how much you pay your staff and Inland Revenue, and what you to put in the IR345 and IR348 forms. Some of these payroll systems (e.g. Xero) also provide export files that you can upload to myIR for the IR 345 and IR348 forms, and batch files you can upload to the bank to pay your staff and Inland Revenue.

Full service payroll

Now things start to get easy. When you sign up with a full service payroll provider you give them direct debit authority to your bank account. You fill in or check the time sheets for the employees and authorise the pay and the payroll provider does the rest. They direct debit the full amount of the pay from you on the due date and pay the staff. On the 20th of the next month they pay Inland Revenue (having already taken the PAYE from your account when the pay went out) and file the forms for you at Inland Revenue.

We use and recommend online provider SmartPayroll.

So which payroll is right for you and what will it cost?

The short answer is an online payroll system is the best, the best value, and the ones you should look at are SmartPayroll or Thankyou Payroll.

Full service payrolls are definitely the easiest and least risk. They do it for all you – no risk of missing payments to Inland Revenue. For SmartPayroll it will cost you around $25 to $35 a month for up to 10 employees. It also has very good email and telephone support help desks – invaluable if you have to work out termination pays or anything out of the ordinary. It also integrates with Xero.

Who should use SmartPayroll? Anyone who has to pay staff should. They easily pay for themselves in the time they save you, even at minimum wages.

But there is more – Thankyou Payroll is very close to being a full service payroll and it is free. The catch is that you have to transfer/DD the full pay to them three days before it gets paid, so they hang onto your money for a bit longer. If you are a charity, or donate regularly to one, or pay a small fee, then you can get next day payroll processing. Thankyou Payroll also have a helpdesk.

Who should use Thankyou Payroll? If you pay staff it is worth a look – the price is right and we have had good feedback from clients of ours using it.

So what are you waiting for?

Both Inland Revenue and the Department of Labour make changes to legislation on a regular basis.
There have been two major changes in legislation affecting payroll calculations within the past year. They are almost universally complex, and the devil, as they say, is in the detail.
If you want to make sure you’re protected from employee dispute claims and compliance issues around payroll, the best way by far is to make it someone else’s responsibility.

If you need help give us a call!