Payday reporting for employers and intermediaries is going digital … Are you ready?
Tax Alert - October 2018
By Jess Wheeler and John Lohrentz
From 1 April 2019, most employers and intermediaries will be required to report ‘employee income information’ in place of the Employer Monthly Schedule (‘EMS’).
From 1 April 2019 most employers will be required to electronically report employee-specific income and deduction information within two working days of payday. For employers and intermediaries who want to act now, Inland Revenue is ready to help transition early adopters to full digital reporting prior to April 2019.
Employers and intermediaries need to ensure that their payroll system can meet Inland Revenue’s reporting standards. This includes making sure that a range of new information (not previously required through the EMS) is collected and properly recorded.
These changes will affect nearly all employers, especially those with weekly pay cycles, high employee turnover, those operating employee share schemes, running shadow payrolls and others with a high number of non-standard PAYE transactions. However, all employers and intermediaries need to consider the effect these changes will have on their systems and their payroll processing teams.
A key part of confirming you are payday ready is to make sure you are treating the different elements of your employees’ remuneration and benefits packages correctly for tax purposes.
Why act now
Complying with the new payday reporting requirements means employers and intermediaries must correctly identify their ‘paydays’ for different types of payments, and their ‘employer group’. In some cases, employers may be able to report information on paper within 10 working days and may be able to:
- Limit reporting dates to twice monthly;
- Get an exemption from the new reporting rules; or
- Set up a special reporting relationship with Inland Revenue.
Failing to identify systemic or data issues before payday reporting goes live may compound issues down the line – it pays to get it right the first time! We’ve had clients in Australia that have transitioned to same day reporting for PAYG and have needed to take on extra payroll resources to cope with the queries from the Australian Tax Office and the tighter timeframes imposed on reporting.
Inland Revenue is also giving employers and intermediaries an opportunity to adopt the new reporting requirements early. There are competitive opportunities for employers and intermediaries who act quickly. Additionally, employers may wish to transition in a payroll cycle that minimises their compliance through the initial stages. But beware! Starting early will require employers and intermediaries to meet all payday reporting requirements, i.e. by both reporting straight away on new and departing employees and any out of cycle payments.
Are you comfortable that you are getting it right?
We encourage employers (and intermediaries) to consider the following questions:
- Are you confident a complete set of information on employee benefits and entitlements is being communicated to your Payroll team?
- Who is responsible for your payroll reporting? Having the right team and internal processes is vital to getting it right.
- Inland Revenue often scrutinises the boundary between FBT and PAYE. Are you clear on the boundary for your organisation? Are you confident employee remuneration and benefits are being correctly attributed as subject to PAYE or FBT?
- Inland Revenue often looks at the treatment and classification of contractors. Are you confident none of your contractors are actually employees for tax purposes? Are you aware of the withholding obligations on payments to certain types of contractors and withholding where required?
- Are you running a shadow payroll? Special rules apply to confirming your ‘paydays’ for reporting.
- Do you run an employee share scheme? Employers are required to report information and can return PAYE on share scheme benefits received by employees.
- Do you have real issues accessing digital services or think the cost of compliance will be unreasonable? We may be able to get you a reporting exemption or a unique reporting agreement with Inland Revenue.
- Are you sure employee and payroll information is up-to-date and relevant? This is especially relevant for employers with a high staff turnover.
If the answers to the above questions affect your organisation, it would be advisable to consider a PAYE review prior to the payday reporting rules coming into full effect. For more information about complying with payday reporting obligations, or about other opportunities to optimise your payroll, please contact your usual Deloitte advisor.
October 2018 Tax Alert contents
- Government announces R&D tax incentive scheme details
- Shining a light on the Tax Working Group Interim Report
- Payday reporting for employers and intermediaries is going digital … Are you ready?
- Accounting for deferred tax on employee share schemes
- Global Tax Reset - Transfer Pricing Documentation Summary
- A Snapshot of Recent Developments