Getting your head around small business payroll

What does payroll mean for small business?

At a basic level payroll is giving with one hand and taking with the other. You need to:

– pay your employees the right amount at the right time, every time (according to their contract and in line with employment law)

– make accurate deductions from their pay for things like tax and retirement

What’s involved in payroll compliance?

To comply with government regulations, you must:

– make accurate payments and deductions 

– provide your employee with a detailed payslip that shows what you have done

– file and pay taxes on time 

– pay other deductions – such as retirement contributions – to the right places

– hold onto payroll records for at least seven years

For this guide, we’ll assume you know how to work out your employee’s pay. We’ll take you through deductions and reporting requirements.

What are payroll deductions?

Deductions are amounts of money you take from your employee’s earnings before paying them. Deductions cover things like:

– contributions to employee retirement schemes

– employee income tax, and taxes on benefits

– payments such as child support

Your employees might also have arranged for deductions to come directly from their pay for additional healthcare insurance, retirement schemes, or charitable donations. You can learn more about these deductions – including the order you make them – in our guide to hiring staff.

Reporting to IRD

As an employer, you will collect taxes from your employees for the tax office. You need to hand over those taxes when scheduled, and file reports to the tax office on a regular basis. These reports show them you’re paying and taxing your employees correctly.

Every payday you report to IRD how much your employees were paid, how much tax was withheld, and what contributions were made to KiwiSaver or other superannuation schemes. Learn more about payday filing.

Payroll options for small business

The more employees you have, the more complex your payroll usually gets, especially if you have a mix of employees on hourly wages and salaries. Throw in some contractors, staff on commission, overtime, expense claims, allowances, and leave entitlements, and your payroll can be different every time you run it. 

There are different ways of handling your small business payroll:

– Pen and paper, or spreadsheets: These methods are preferred by businesses with a handful of employees. However spreadsheets are often not accepted by the tax office.

Written by: Xero