HWI Chartered Accountants Auckland

Payroll

As an employer there are legal responsibilities involved with hiring and terminating personnel, never mind the bookwork for keeping them paid and legally employed.

• Legally hiring staff – both locals and international employees;
• Termination of staff – their resignation and your dismissal;
• Keeping them paid, and holiday pays;
• Time sheets and ghost employees – large employers;

Hiring

1. All people working in your firm; employees or contractors must have an employment agreement or a contract (Absolutely no excuses) Employment Relations Act 2000.
   
   
2. Everyone must have an IR330 tax code declaration form on your files, contractors who do not supply an IR330 should supply you with a valid certificate of exemption each year; If you do not hold an IR330 or exemption certificate, taxation must be deducted through the PAYE system at the non-declaration rate (46.7% PAYE see IR 335). Failure to deduct at the non-declaration rate can make you as an employer liable for uncollected taxes as per the Inland Revenue Department.
   
   
3. Employees on work visas, periodically have to update their visas. As an employer you should have a photocopy of their passport and work visa on your file. It is your responsibility to update this as it falls due. The department of labour, can and do fine employers $10,000 per illegal employee. (Immigration Act 2009) It gets worse if the Department of Labour decides that illegal staff have been exploited, a maximum of 7 years imprisonment and/or a fine of $100,000, plus paying out the employee(s) the correct wages owing.
   
   

Termination

1. As best practice, for all staff members who resign their positions, you should have on file a resignation letter. If the staff member does not supply one, but agrees verbally, you should write down the terms yourself and present them with a letter to sign. This will fix the dates from which outstanding holiday pay is calculated and any other benefits stop e.g. FBT vehicle. In a perfect world, their holiday pay and other benefits should be worked out before they leave the premises on the last day of employment, and they should sign a copy of their last pay slip for your files, that they have agreed to the amount, less any deductions.
   
   
2. If you have to terminate an employee, get assistance immediately. The path to formal termination is both costly, and fraught with legal complications. If you fail to document your side of events and go through the correct process from day one, the outcome can be unfavourable. The law is heavily weighted in favour of the employees in wrongful dismissal cases. The Employers Federation and your legal representative may cost a little up front, but in the long run, the money is well spent.
   
   
3. Abandoned position. Have two or more administrative personnel attempt to contact the absent employee, and confirm abandonment of the job. Take down a formal memo for your personnel files, as to what you have done to contact the employee, and reference it to the section of the employment agreement on abandonment. Then write the employee a formal letter, confirming that you have terminated the position on the grounds of abandonment, pay out holiday pay etc, and send a final pay slip.
   
   

Holidays, PAYE and record keeping

1. It is essential that all holiday pay records are kept up to date at all times, as well as days in lieu. Failure to do so will cause major problems between you and the employees, the Department of Labour and the Inland Revenue Department.
   
   
2. If you are having difficulty in keeping up with payroll, there are alternative methods;
   
   
   a.  Use a payroll service, very good, even for small employers, allows you to put your energy into the work, and not the paperwork.
   
   b. A good quality computer payroll system.
   

Time sheets and ghost employees

If you are a large employer, with more staff than you can name and identify, then you are at risk of ghost employees. This is when the payroll staff, maintain the records of terminated employees as active personnel, or they enter the details of people who never existed.

If you are concerned about this possibility there are some basic tests you can perform before calling in the auditors/investigators;

1. Go and meet your staff on the factory floor, and ask them if they have seen so and so, this completely bypasses the office staff. This can be done at lunch time and is simple, free and effective. It also sends the message to the payroll staff that you are on the prowl;
   
   
2. Get an excel print out of the payroll and sort by ird number and then by bank account number. If you get duplicates with different names beside them, you may have an issue.
   
   
3. Once in a while stand beside the time clock and greet everyone as they come into work and go home. It’s a wonderful way to stop one person punching two or more time cards. Or put a surveillance camera over the time card reader.
   

Recommended websites:

Department of Labour www.dol.govt.nz

Inland Revenue Department www.ird.govt.nz

The Department of Labour will assist you to create an employment agreement on line, via their website and print it out. IR330 taxation declaration forms can be downloaded free of charge from the Inland Revenue Departments website along with their employers guide IR 335.