As this magazine issue ‘hits the streets’ it’s just two months until the IRD’s Payday Filing deadline. Will businesses and payroll providers be ready? How should business owners prepare for the change? NZBusiness went to the market.
From April 1st 2019 all employers will be required to send their payroll information to Inland Revenue whenever they pay their staff. Payday filing is billed as the biggest change to the way businesses manage their payroll in more than two decades. Yet surprisingly, according to MYOB Business Monitor research, there’s little understanding of the new process amongst the New Zealand’s business community.
The Monitor revealed that just a quarter of local business owners know that it’s coming, while of those that signal some understanding of the new process, just 31 percent say they know a lot about it. The rest only know a little or nothing at all.
“This tells us business owners are underprepared for the change, which is why we’re working hard to build awareness in the lead up to the filing deadline,” says Nick Fletcher, head of clients and partners NZ at MYOB.
He says MYOB is releasing its payday filing service to all customers this month and has already had several customers trialling payday filing on their payroll products. Feedback has been “fantastic”. Two responses from the trial group were: “is that it? That was easy” and “a blind man could do that, super easy!”
“Our experience with Single Touch Payroll (STP is the Australian version of payday filing) taught us customers really value the ability to jump on the phone and contact the support team directly when they shifted to the new system to make sure everything went smoothly,” says Fletcher.
iPayroll’s national sales manager Elaine Kirk is familiar with the STP implementation through iPayroll’s Aussie-based entity CloudPayroll. “Inland Revenue is currently operating two systems within New Zealand – the old FIRST system and the new START system – which will inevitably add a level of complexity to the process,” she says. “However, we are ready and trust that it will all run smoothly at their end.”
Like anything new, payday filing requires some readjustment – but once implemented, the benefits soon become obvious.
Robert Watt, owner of three The Source Bulk Foods stores in Auckland, has been filing his staff’s employment information to the IRD since April last year, after his software provider made it possible through his existing payroll package. He says once it was set up, it was “just like doing a normal pay run”.
In a statement to the media, Inland Revenue customer segment leader Richard Owen says Robert’s experience is typical of what they’ve been hearing from other customers who have payroll filing-compatible software.
“We are busy working with the all payroll software providers to help them link directly with our systems and create the best possible experience for their customers.”
Watt, meanwhile, says the tax part of the process now seems more integrated. “Previously, I would have to manually pull all the information out of my software and file it to Inland Revenue on the 20th of every month. But now my software does the job of compiling the data and sending it on to IRD at the end of each pay run – so the job is out of the way and I don’t have to worry about it again.”
Owen says there are some impressive software solutions in the market, some of which take care of payday filing in just a few extra clicks.
“If they haven’t already, employers should check with their software provider about their plans for payday filing and try to get started as soon as possible.
“Robert’s payroll data is going to give Inland Revenue more timely access to his staff members’ income information so we can make sure they’re paying the right amount of tax at the right time.”
As to what happens if a business doesn’t meet the April 1st deadline, the IRD’s response is, “If anyone thinks they won’t be able to make the deadline, then get in touch with us as early as possible and we’ll see how we can help.”
(Interestingly, Inland Revenue became New Zealand’s first large employer to adopt payday filing – switching its 5,138 employees to the new regime well before the end of last year.)
Don’t leave it to the last minute
If you haven’t consulted your payroll provider regarding payroll filing yet you’re in danger of leaving it too late.
Robert Owen, founder and CEO of FlexiTime, says based on their experience, it can take payroll providers some months to get payday filing running smoothly, so there’s a big business risk if everything’s left too late.
He says if your provider is heading towards a ‘file download/upload’ approach, won’t be ready to the last minute, or can’t give an exact date, you may want to consider changing systems.
“Provided your payroll software is automatically handling the payday filing there’s very little to be concerned about. With FlexiTime PayHero, you link with IRD once by logging in to their website, and from that point on its zero-touch,” he says, adding that by November 2018 FlexiTime was leading the competition by having already filed around 20,000 payday filing returns for its customers.
“It’s easy to get set up on payday filing, but very occasionally we find customers have an issue when using the wrong myIR login when linking up. Sometimes they’re using their personal login rather than the one for their company. “Alternatively they’re using a login with delegated authority, but they haven’t been given the correct permissions. So check you’ve got the appropriate myIR login ahead of time.
“If your payroll software is doing payday filing well, and you know your myIR login, it should be a pain-free change,” he says.
MYOB’s Nick Fletcher says there are a number of things business owners can do to get ready for payday filing. Check your MyIR login is authorised to file for the employer IR number or determine if you need to delegate access to your payroll returns account.
It’s timely to have written and signed employment agreements for each employee, and make sure all employee data in the payroll software reflects the Employment Agreement and any letters of variation. Then opt-in to payday filing through MyIR to inform Inland Revenue that you’re moving to the new process; make sure you’re on the latest version of your payroll software and that it has payday filing available; then submit your first Employment Information (EI) return for the first pay run in a new month.
Fletcher warns that only the myIR account owner can delegate access to new or existing users to allow them to payday file through the payroll returns account on the business/account owner’s behalf. “Check who the MyIR account owner is for your business. You may need to contact Inland Revenue to find out.”
And at present you can only begin payday filing at the beginning of a new month.
If you’re concerned about any extra compliance burden, Fletcher says while payday filing can mean filing more frequently, technology does a lot of the work. “Online products like Essentials Payroll incorporates the process into an ordinary pay run by generating and sending the EI return to Inland Revenue automatically. Businesses won’t have to remember to submit an EMS on the 20th of the following month – meaning they’re less likely to be fined for missing the date.”
The new payday filing process is therefore quite simple:
1. Collect information from employees if required (timesheets).
2. Process the pay run (ideally in payroll software).
3. Pay employees’ wages or salary.
4. Pay PAYE to IRD (small businesses on the 20th of the following month).
In regard to tax, Robert Owen says they’re finding many smaller companies prefer to pay the tax with each pay – so they have nothing to remember later.
FlexiTime also worked with IRD to remove the need to file a monthly IR345, he adds, because all the information in it is already being provided in the payday filing. “To their credit, they listened and have managed to eliminate this requirement.”
iPayroll’s Elaine Kirk says her company has been implementing voluntary payday filing for PAYE Intermediary (PI) customers progressively from December 2018 to ensure all employers using this service are compliant by April.
“iPayroll will continue to manage all PAYE tax filing matters directly with Inland Revenue on PI customers’ behalf as their transition to payday filing progresses. For our non-PI customers – that is, customers who manage their own tax – by April 1st we’ll be providing tools to enable them to file the Employment Information schedule to Inland Revenue every payday. Alternatively they have the option to join the PI service prior to 1st April and have iPayroll manage this process on their behalf.”
Choosing a payroll solution
If payday filing is prompting a review of your payroll solution/provider, to find the perfect match first define your needs. At the very least look for a cloud solution that incorporates leave management, employee access and automated payday filing, advises Owen, and compliance with the Holidays Act goes without saying.
“For most small business owners, payroll is a task that needs to be done, but not something they necessarily enjoy spending time on. If that sounds like you, look for a product that’s intuitive for you and your employees to use and makes the process of paying staff quick, easy and understandable.
“One of the most time consuming and error prone parts of the payroll process for many businesses is getting employee time into their payroll system, not the payroll calculations themselves. If you have staff paid by the hour look for a system with online timesheets or other methods of sending employee time through, says Owen. “That will significantly decrease the amount of time spent running pays and reduce the chance of data entry errors.”
Other considerations include: user experience for you and your employees; integration with third party applications; and does the support team have a track record of local experience?
iPayroll’s Elaine Kirk agrees business owners are always busy with compliance and therefore should take a leap of faith and a leap to the cloud to make things easier for themselves. “iPayroll, now in its 18th year, looks forward to providing these services to all of those businesses looking for a seamless transition to payday filing.”
Kirk says best practice is really all about using robust, well-established payroll systems, preferably that have “real person” support.
Support is certainly important because, as MYOB’s Nick Fletcher points out, payroll in New Zealand is complex. “New Zealand’s in the top 10 in the world for payroll complexity according to the NGA HR Payroll Complexity Index, which is why it’s essential to have the ability to pick up the phone and speak to a specialist.”
Fletcher says online payroll solutions are superior because of the flexibility that comes with processing a pay run from any device, the ease-of-use and the data automation available. Automation streamlines the whole payroll process so employers can get back to focusing on their business.
The payroll providers have had their work cut out for them to provide solutions for the ever-changing payroll landscape in New Zealand – and this is likely to continue in 2019 and beyond with the planned reform of the outdated and somewhat complex Holidays Act.
At FlexiTime Robert Owen is confident PayHero will deliver the goods for employee remuneration, compliance and management going forward. “It’s a new version focusing on automated integration with IRD, bank payments and Xero, and is the culmination of everything we’ve learned from working with a wide variety of businesses for the past ten years.”
In summary, the introduction of payday filing will be a watershed moment for the payroll sector, its providers and for businesses in New Zealand – here’s hoping everything happens smoothly on April 1st. There are reputations riding on it.
Get your house in order
When NZBusiness spoke to Lisa Martin, executive director of accounting solutions specialist GoFi8ure, late last year, she suspected many business owners were “in cruise mode” over payday filing – focused on just getting through the Christmas period.
Now that New Year resolutions have been made she’s hoping that “sorting out payday filing transition” is the very first business resolution business owners will honour.
“When you think about it, everything about running a business relates to people, strategy, execution and cash; payday filing is about people and cash,” says Martin. “So it deserves to be a major priority.”
Her best advice? Look at the payroll set-up you have now, and get a trusted payroll advisor – that’s your payroll company or accountant, or your book-keeper – to ensure that its fit-for-purpose.
For business owners who don’t think they’ll be ready for the transition, Martin says although Inland Revenue will offer to help, remember that at last count (in February 2018) New Zealand had 534,930 enterprises. Inland Revenue will be rather busy for a while.
“If I couldn’t successfully prepare for a marathon I would find someone who had run one and ask them what I should do. Again, it comes down to seeking a trusted advisor.”
After payday filing Martin describes payroll auditing as the “next Darth Vader of the Death Star” coming for 2019, 2020 and beyond.
In preparation for payroll auditing she advises business owners to get onto automated software. “Basically where you can log on, enter your hours, push a button and then your payroll software calculates everything for you, including annual leave, sick leave, balances, Kiwisaver, student loans and child support.
“And it only costs the price of a couple of lattés a week.”
Get your house in order now, she urges – especially everything you do from a payroll point of view. “Because it’s people’s money and PAYE, tax-deducted at source for the IRD. It has to be right and there’s an increased chance you could be audited.”
To learn more about payday filing options go to www.ird.govt.nz/payday