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In this article we take a look at some common questions employers are asking about the new payroll giving rules.

Q What is payroll giving?

A Broadly it is a scheme whereby employees can choose to make regular donations from their pay to a charitable organisation thereby receiving the tax benefit in real time as a credit against their PAYE deductions.

Q Do employers have to implement payroll giving?

A No, it is a voluntary scheme. The rules only apply to employers who choose to offer payroll giving to employees. Further the scheme is voluntary for employees also and so where an employer offers payroll giving, employees are free to choose whether to participate or not.

Q Are all employers able to offer this?

A No. Only employers who electronically file an employer monthly schedule and the PAYE income payment form are able to participate.

Q How is the tax credit calculated?

A The tax credit is calculated by multiplying total donations made by the employee in a pay period by 331/3%. This tax credit is then deducted from the amount of PAYE for the person. Note that the tax credit cannot exceed the amount of PAYE on the employee’s pay for the pay period.

For example: 

The employee receives $400 per week and makes regular contributions of $10 each pay. The employee is on a 21 percent tax rate.

Q If an employee has other payroll deductions, are there any rules around priority?

A Yes. Employees can only make payroll donations after meeting other tax and legal obligations such as student loan, KiwiSaver and child support payments each pay-period. Employers will be able to rely on assurances from employees that they have satisfied any other tax obligations that need to be met from salary and wages.

Q What compliance is involved for participating employers?

A The rules have been kept deliberately non-prescriptive in order to give employers flexibility to establish a scheme that works best for them in order to manage compliance costs. At a minimum, employers will need to:

• calculate and deduct the tax credit;
• hold the payroll donation in trust for the employee until it is transferred;
• include the relevant particulars of the tax credit in the employer monthly schedule and PAYE income payment forms;
• keep records of payroll donations made; and
• transfer the amount of payroll donation to the selected donee organisation within two months

Practically of course there is a little more than this for employers to consider. For example, employers will need to develop a policy on payroll giving and decide on the level of education they provide to employees. Compliance costs will be managed if employers can select and limit the number of donee organisations that the employees can contribute to. Employers might consider setting a minimum payroll donation threshold and or minimum time periods for donations. There is always the option of using an intermediary to manage this. Employers may well be approached by donee organisations to be the preferential donee organisation that is supported. Some large organisations may even set up their own charitable donee foundation which will then decide how the payroll donations will be used.

Q What is involved in holding payroll donation monies “on trust”?

A This is likely to be similar to the rules for PAYE intermediaries who must establish a trust account. This involves setting up a separate bank account with a registered bank which is named as a trust account. The donations made into this account are held for the benefit of the employee until they are transferred. The Companies Act and Insolvency Act specify that where an employer goes into liquidation or into insolvency, any donations not yet passed on will have the same priority for return to the employee as unpaid wages.

Q Who is responsible for checking out whether donee organisation is a qualifying one?

A The employee is required to ensure the recipient of the donation is a qualifying donee organisation and will be required to supply the employer with sufficient details of the recipient to enable a transfer to be made.

Q What about employees who choose not to participate or are not able to donate via payroll because their employer has not implemented a payroll giving scheme?

A Employees who do not participate in payroll giving can still claim a tax credit (formerly known as a tax rebate) on donations through the current end of year process which involves completing a tax credit form (IR526) and sending it to Inland Revenue with supporting receipts.

These rules come into force 3 months from the date of royal assent. Royal assent was received on 6 October 2009 and so these rules come into force on 6 January 2010.