Employers - Don't get caught On The Hop With Payroll Giving

A New Season for Giving
Kiwis are generous givers even in these tougher times. According to Venessa Bourke of Guardian Trust, New Zealanders rank just behind the UK and ahead of Australia and Canada in terms of the amount we give to charity as a percentage of GDP. (MindFood December 2009, page 50). A Ministry of Social Development source said recently that there are currently in the region of 794,000 employees in New Zealand who are “committed givers”, that is, people who donate on a regular basis. That represents about 40% of the New Zealand workforce.

The Government’s new “Pay as you Earn” payroll giving scheme started on 7 January 2010. It is designed to make it even easier for employees to donate to their favourite charities or good causes by deduction from their wages. Employers will need to familiarize themselves with the scheme and shouldn’t be caught on the hop when employees approach them to set up a deduction from wages for charitable giving.

How does it work? The IRD website provides very user friendly FAQs for both employee and employer. Go to www.ird.govt.nz/payrollgiving.

In essence eligible employees can make donations to IRD approved donee organisations by deduction from their wages and receive their tax credit at the time of making the donation, rather than by collecting receipts and filling out a tax credits claim form and sending it off to IRD at the end of a tax year. The eligible employer remits the donation to the donee organisation, calculates the 33.33% tax credit , deducts the tax credit from the employee’s PAYE remittance and adds the tax credit back into the employees wages, showing it all on their payslip.

Who are eligible employees?
First and foremost, it is only open to employees whose employer operates the electronic filing system known as ir-File for PAYE remittances to IRD (or which runs its payroll through a payroll agency who operates electronic filing).
Secondly, the employer must agree to operate the scheme. It can say no, as the scheme is entirely voluntary - for both the employee and the employer. However, for employers who do agree to offer the scheme, there are a number of obligations. The onus is on the employer to:

- Ensure the recipient of the donation is an IRD approved donee organisation

- Obtain the donee organisations’ correct bank details

- Remit the donation to the donee organisation within the specified time frame

- Calculate the correct tax credit for the donation

- Record this in its pay records and in its IRD electronic monthly schedule

- Reduce the PAYE it sends to IRD by the amount of the tax credits

- Retain all donee organisation receipts

- Record the donation and tax credit on the employee’s payslip.

This might sound worse than it really is in practice because the main payroll agencies have already developed software which is designed to do all this for the employer – but this may be at a fee.

What flexibility does the employer have if it wants to offer such a scheme to its employees? In short, there is a lot of flexibility. The payroll giving legislation aims to be very hands off, leaving a lot for employers to decide. But, as with all employer actions and decisions, what the employer decides and how it acts if it does decide to operate a payroll giving scheme will be subject to the same legal justification test under s103A Employment Relations Act 2000 as any other workplace action or decision. And, employers who are in a collective employment relationship with one or more union, be ready for union requests to operate payroll giving in your next bargaining round.
Some of the concerns employers have expressed relate to having a long list of donee organisations to remit to, and the frequency by which an employee can change their donation arrangements. A good employer would discuss how payroll giving will run in its workplace.

Here are some practical suggestions. An employer might want to limit the number or specify specific organisations that its is willing to support, rather than be willing to meet a large number of different donee requests. It might even draw up a specific list of say 2- 5 organisations that it is willing to support and offer the scheme only for donations to those specific organisations. Don’t neglect basic good housekeeping. Specific written donation instructions will need to be obtained from each employee who wants to donate giving the requisite authority to deduct from wages. It would be wise to specify how the employee is able to change his/her donation amount, frequency of giving or change who they donate to. If there is a cost to the employer in operating the scheme, the employer may want to pass in some or all of those costs to the participating employees, or alternatively make its employees aware that it is wearing the cost of providing this employment benefit.

Susan-Jane Davies
EMA Legal
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