Payroll giving is a voluntary scheme that allows employees to make charitable donations straight from the paycheck and receive immediate tax credits, meaning payroll giving is a great way to minimise PAYE tax.
How does payroll giving work?
Like any tax related procedure, there are a few rules and regulations to get set up. First, your employer must pay wages electronically, or at the very least file their employer monthly schedule and deduction form electronically. Second, your charitable organisation of choice must be an approved by Inland Revenue. To check if the charity you are thinking of is approved, you can use the Donee Organisation search function here. Note that it is an exact search, so if for example you are searching for RSPCA, the results will show a few different local branches, but most actually come up as ‘Royal Society for the Prevention of Cruelty to Animals’ with a branch name. For example:
Be sure to also search for the IRD registered name, rather than a commonly used name or acronym.
Next, provided your employer’s payroll scheme allows, you will need to give them the following information:
- The name of your chosen donee organisation
- The amount of the donation you want to make
- The pay period, or periods, you want the donation to be made
- The donee organisation’s bank account or postal address.
How do payroll donation tax credits work?
Payroll giving tax credits are applied after PAYE and the donation is deducted. The credit is 33.3333 cents out of every dollar, which gets added back into your take home pay. Or rather, the employee’s PAYE is reduced by the amount of the tax credit. The IRD gives the following example:
I’m an employer, what are my obligations?
If you offer payroll giving, you are responsible for calculating the correct tax credit amount and record it, deduct the amount from your employee’s wages, pass it on to the donee organisation, keep records, communicate with the organisation. Luckily with SmartPayroll, we can handle that all for you automatically. All you need to do is enter the amount to be donated and we can do take care of the following:
- Deduct the requested donation amount from the individual employee’s salary or wage
- Calculate the correct tax credits for payroll donations for each donation made
- Record the tax credits for payroll donations for individual employees
- Keep records of all tax credits for payroll donations, donation amounts, donee organisations and payment dates
- Pass the donations to the chosen donee organisations within the specified timeframe of the deduction being made from the employee’s salary or wage
- Advise the donee organisation the donation is a result of payroll giving.
For more information on the system, IRD has some great resources online for individuals or employers. If you’d like to set up payroll giving with SmartPayroll, contact our helpdesk and we will tell you everything you need to know!
How many people are participating in the payroll giving scheme?
The IRD recently published a report on the the scheme up until 2013. Until Jan 2014, New Zealanders had given $13.4 million. In September 2013 alone 4,081 employees donated just over $471,000, meaning they received immediate tax credits totalling just over $157,000.
Payroll giving statistics from October 2012 – September 2013:
Payroll giving is a great way to give an extra perk to your employees, encourage a positive atmosphere at work and to help give back to our community. SmartPayroll makes it super easy – just give us a call on 0800 10 10 38 if you’d like to know more!