A much anticipated change to Income Tax Rates – a Payroll perspective.
On 9th May 2024, The Hon. Nicola Willis reiterated the Government position on delivering income tax reduction for working New Zealanders.
The last time changes in income tax thresholds took place, was 1st October 2010*.
Whilst tax relief is most welcome in this current economic climate, the timing of implementation brings some questions.
Wage calculations – again?
Many of our wage’s clients will recall the changes made 1st April 2024, when minimum wage increased and ACC Earner levy was raised to 1.6 cents in the dollar. Clients can expect similar wage calculation activity, to show the changes required to net payments, to reflect the changes in their PAYE deduction figure. This is a cost to your business.
What are the new threshold’s?
As previously reported by our own Gerrie Jacobs (March 2024) we have only been given proposed threshold figures, the announcement of the new rates is due today at 2pm.
Once announced, Inland Revenue, Payroll service providers and software developers will have a very small window in which to enact these changes (as prior to this announcement, our team has not been in a position to provide accurate calculations).
Seems straight forward – why do I need further wage calculation’s for my employees?
Unfortunately, these changes come with levels of uncertainty.
When tax rates are changed part way through a year (as is happening this year), an average of the new and old rates are applied across the entire year to determine a person’s annual tax liability. The average tax rates are called composite rates. Having a composite tax year will bring another component of complexity to the situation.
It is also fair to note that other payroll components will be affected. Employer Superannuation Contribution Tax (ESCT) and Prescribed Investor Rates (PIR) will have changes that directly correspond to the changes in thresholds.
If these calculations are not administered correctly, your employee’s deductions may be incorrect.
So what do I need to do?
If you use an external payroll service provider, such as ourselves, you can expect the following, as per your applicable payment scenarios:
- Automatic payments (Salaries and standard pays) – we will provide you with an updated wage calculation prior to your first payment date after the changes come into effect.
- Hourly rate wages (also referred to as ‘Live’ wages) – our software partners will have updated the system. We will apply additional vigilance when the first pays are calculated, to ensure the updates have loaded correctly and the outcome is in line with expectations.
If you are managing your own payroll, and would like an independent review of your processes, or a fresh calculation to move forward with – please reach out. Our friendly team are on hand to provide support and advice.
Our main contact details are;
Phone: (07) 889 7153 – ask for Payroll Division.
Email: wages@cooperaitken.co.nz
Strapped for time or not in the office? Send us a text message.
Text service: (021) 197 7132
[*] Source https://www.parliament.nz/media/7523/library-research-brief-income-tax-rates-december.pdf
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Written by Jane Smith
Payroll Team Lead
P: 07 889 7153
E: wages@cooperaitken.co.nz