Payday filing will cost small biz $2k a year, accountant warns

An accountant believes some small business owners will have to pay $2000 a year to meet new payday filing requirements coming into force on April 1. Photo/Supplied.

It will cost some small businesses around $2000 extra a year in fees to meet new payday filing requirements being brought in by the Inland Revenue, an accountant is warning.

From April 1 all employers will have to file pay details to the IRD within two days of a person being paid - a shift from the current monthly employer schedule which typically sees them file the information on the 20th of the month after.

The change is designed to make it easier for the IRD to ensure payments are accurate and enable automatic tax refunds.

But David Harrison, a chartered accountant based in Kerikeri, said it was going to be an extra compliance burden for small businesses and could suck up a significant amount of income from small business owners.

"Payday filing will not be less work. It will cost small business approximately an extra $2000 in fees a year to change to pay day filing."

Harrison said that figure was based on the fact it took around 15 to 20 minutes to calculate and enter gross wages, student allowances, KiwiSaver and child support deductions for each staff member of a company once a month.

"If this must be done four times a month instead of once, there will be an average of 45 – 60 minutes extra per month.

"A conservative charge out rate of $150 an hour would see $1800 plus a year being added on to a client account," he said.

Those who moved to use a payroll software provider could face fees of $65 a month adding $800 in costs while also still needing to enter the information into the software progamme.

Harrison believed the change would encourage some employers to pay staff weekly but only file PAYE [pay as you earn] information to the IRD once a month.

"A lot of people will be thinking about that," he said.

Jolayne Trim, a senior tax advocate for industry body Chartered Accountants Australia and New Zealand, said $2000 sounded about right for those who were currently doing it manually or using software not connected to the IRD and paying employees weekly.

"I think there could be higher compliance costs for some small businesses."

She said using a payroll software company could cut the compliance costs but she said
it would be good if there was an incentive for businesses to move to the new system.

"Realistically support and encouragement is all that we can expect from a government department."

Trim said CAANZ had lobbied for the IRD to build its own software portal rather than having private providers fill the gap but that would have been cost the department which was already in the middle of a huge IT project.

"That would have been one way to get around that."

She said it was concerned that when the government proposed reducing compliance costs
it shouldn't just mean shifting it from the government to the private sector.

She said $2000 a year could be a lot for a small businesses.

Despite that she believed the IRD had done a good job in introducing the change.

"They consulted early and often."

But she said for some it would still come as a surprise.

Corey Sinclair, Inland Revenue's community compliance leader, said it had hosted more than 400 seminars around the country promoting payday filing as well as a series of webinars and emails to employers.

"We always stress there are multiple ways to payday file and it's up to each employer to choose the option that best suits their business."

Sinclair said that while software was the quickest and easiest way to file it appreciated that some employers would feel that payroll software wasn't right for them.

"These employers can simply file online in myIR. A little set up is needed, but after that, most of their information will be pre-populated by Inland Revenue so employers don't have to enter the same information every payday. This is a great option for small businesses and it's completely free of charge."

Sinclair said it was not the IRD's role to be investing and developing our own payroll software in competition with providers already in the marketplace.

"Payroll software doesn't just help with your tax obligations – there's a whole range of services it provides, which have nothing to do with the core function of a tax administration."

He said the tax department would continue to make employers aware of the benefits of payroll software, which it believe could reduce business costs.

"We acknowledge payday filing is an extra step in the payroll process but it's one that can be easily integrated.

"Most of the information we are asking for is already being compiled by employers every payday. The difference is it will be sent to IR straight away rather than putting it aside and then compiling it in a monthly record, which employers have to do today."

Sinclair said it was also aware that some employers may try to pay their staff weekly and report their employment information monthly.

"Our plan is to provide support, education and assistance to help employers get on board with the new approach but we can impose penalties on employers who are deliberately breaking the law."