COMING, READY OR NOT!
WITH CHANGES IN THE WIND ACROSS THE ACCOUNTING AND PAYROLL SECTORS, BUSINESS OWNERS HAVE MUCH TO PREPARE FOR LEADING INTO 2019. FORTUNATELY THERE ARE SOFTWARE AND SERVICE SOLUTION PROVIDERS READY TO MAKE LIFE EASIER.
With changes coming across the accounting and payroll sector, including new payroll reporting rules, business owners have much to prepare for going into 2019. Fortunately there are solution providers ready to make life easier.
Nobody ever said running a business was easy, but it certainly doesn’t help matters when changes to business legislation come along which demand additional compliance and extra planning – and significant changes are always on their way.
Cue this country’s leading accounting and payroll software providers, who have no choice but to keep up with the pack or risk leaving their clients behind. Large sums of money are constantly invested to ensure changes happen smoothly and on time – with the goal of making business management less onerous over the long term.
One of the most testing changes for business administrators is the new Payday Reporting regime, which will be compulsory from 1 April next year, and require most employers to report their employees’ earnings, tax, KiwiSaver and social policy deductions to Inland Revenue within two working days of them being paid. This process will replace the information currently aggregated and reported on the Employer Monthly Schedule each month.
In addition to this employment information, employee start and leaving information, including opt-in and opt-out information to KiwiSaver, will also be submitted electronically to Inland Revenue.
Only employers paying less than $50,000 in PAYE and Employer Superannuation Withholding Tax are exempt from these payday reporting requirements.
While all this may sound relatively simple, Mike Rich, co-founder of Attaché and not-for-profit M-Institute, says it will require every payroll to be upgraded.
Attaché has produced a helpful ‘Payday Filing Checklist’ (see pages 25 and 26) to help employers through the whole process – no matter what payroll software they are currently running with.
“The first step is to appoint your ‘payday filing champion’, and start ticking those items off,” advises Rich.
It may seem far away still, but he believes the 1 April deadline will be tight. “Both the UK and Australia have done a similar thing and the biggest lesson learnt was that most employers and payroll providers left it all too late.”
Rich also thinks the switch to payday reporting is a rare chance for businesses to improve their sales, stock and debtor systems – “especially if you have old desktop or small cloud systems you have outgrown”.
For medium-sized businesses of around $2 million to $100 million in revenue, Attaché has also produced a free ‘Business Improvement Guide-Payroll’ that can help decision-makers determine what level of software best fits their business.
So what exactly is the IRD’s goal with the new payday reporting regime? It’s simply about a more timely receipt of information. Datacom Payroll’s GM products and compliance, Chris Mar, says it’s intended to streamline the reporting process, allowing Inland Revenue to identify mistakes and suggest corrections as soon as they’re made. It also allows government social policy to be based on more real time information.
“Inland Revenue’s intention is that even though reporting happens more frequently, the fact that the process will be embedded in payroll software will make overall compliance easier, as the filing of information becomes a part of the normal process of employing and paying staff.”
Mar says it’s important to note that payday reporting relates only to the need to report the earnings and PAYE information each pay to Inland Revenue. There is no change to the dates on which tax
payments are due. These remain the same, either once or twice a month depending on whether your business is withholding less or greater than $500,000 per year.
(IRD has a full list of employer responsibilities around payday filing explained here: www.ird.govt.nz/payroll-employers/ returns-payments/payday-filing/payday-filing.html)
Plan ahead, start now
Unless businesses want to manually file payday data each payday, it makes sense to have their payroll service provider do it for them automatically – in other words, seamlessly and without requiring any intervention. iPayroll is one provider who’ll be doing payday filing this year, and has overseas experience to draw upon. “iPayroll, through its subsidiary CloudPayroll, had an excellent go ‘live’ with Single Touch Payroll (STP) in Australia,” says iPayroll’s managing director Martin Gleeson. “It was compulsory for all organisations with 20-plus employees from 1st July 2018, and we went early from the start of June. “We are working directly with IRD to ensure we have a similar experience in New Zealand and our experience with having already done something similar in Australia recently is helping us considerably.” Datacom Payroll’s Chris Mar warns that once-amonth filing might seem like a manageable task now, but having to report this information each pay will quickly become tiresome. “While Inland Revenue will support a manual upload of employment information each pay, a manual approach will inevitably increase your compliance costs.” Mar says ideally a payroll provider should provide a fully integrated solution with IRD systems, so that when your payroll is run, you have an option to automatically submit your payday data directly from the software once you are satisfied that all is OK. “At a minimum, payroll software should be able to provide export files of the required data in the correct format for upload to Inland Revenue.” Mar believes it’s easier if payroll software can integrate with Inland Revenue systems directly, as opposed to using something like the IRD portal myIR to have to file payday reports. “Having acted as a PAYE Intermediary since the scheme’s inception, we’re confident we have the necessary experience to work with Inland Revenue to complete the requirements for payday filing as well. Customers that have already outsourced their payroll filing responsibilities to Datacom will notice very little change when payday reporting starts.”
Looking at the Australian STP example, so far, Mar believes the level of knowledge from employers, in terms of understanding their obligations, was fairly minimal.
“This was despite a significant communications push by the Australian Tax Office and software providers to let employers know about the upcoming change.”
Some Australian employers were simply not prepared for the change, Mar says, and he expects this to happen in New Zealand too.
The ATO implemented a deferral scheme which allowed employers to apply for an extension of time to get ready for the change – and this deferral scheme was extended to payroll providers. However, the IRD has given no indication of introducing an equivalent deferral system here, says Mar.
Why automation matters
For business owners tempted to manually DIY their way through the new payday filing regime, Lisa Martin, executive director of accounting solutions specialist GoFi8ure, sounds a warning. If you’re paying staff weekly, it would require you to log onto the IRD site four times a month.
Things get tricky when a business owner decides to wing it, Martin says. They might go online at 10pm on a Monday night, get the PAYE calculator, work out the net pay and pay their staff. Then have just two days to get it checked.
Better to go on an automated payroll system and avoid all the stress, she says – provided you’re talking to a bookkeeper, accountant or tax agent, and despite the fact that the IRD is encouraging people to deal direct.
Martin implores business owners to never use Excel spreadsheets to manage payroll, when there are so many affordable cloud-based (SaaS) payroll software packages out there. And get the provider to set it up, she says, so balances such as accrued leave are carried forward correctly.
The recent Bunnings case relating to miscalculated leave payments is a great reason why you should get it right.
“Start now with new software, don’t leave it to April 2019,” urges Martin. “It’s all about the planning and processes, especially considering it is someone else’s money!
“There are loads of bookkeepers standing at the ready to help you get off spreadsheets and into the 21st century.”
Catie Cotcher, general manager, Business Group at Reckon says online accounting software should make your business run more efficiently, not add stress. “From streamlining your accounting needs, to giving you the flexibility to manage your finances on the go, cloud accounting can offer a tailored solution that suits your business whether you’re a sole trader or larger business owner.”
Cotcher’s advice is to speak with an online accounting provider, such as Reckon, about your
business needs and get the solution that is going to fit your business model the best.
“Ask yourself questions around what you need from your business accounts, and look into the future slightly – are you going to grow? Will you need further functionality as the business expands? One size doesn’t necessarily fit all,” she says.
The challenge for all business owners is that their business is their number one priority, as it should be, Cotcher points out. “Accounts, invoicing and payroll obligations can become a time-consuming chore, and in business time is money,” she says. “Understanding that there are new initiatives coming through is also important. Business owners need to be prepared, in order to make necessary adjustments to their bookkeeping processes and ensure their focus remains on their business.
“We’ve come a long way in a few years. Business owners are realising that there are easier ways to get things done – with all the added capabilities of cloud accounting now saving time and the headache.”
A glimpse of the future
So what other payroll issues do the experts anticipate going forward into 2019? Datacom Payroll’s Chris Mar says Holidays Act compliance will remain a challenge, given the increasing variety of ways in which employees work.
“While we can be hopeful that a government working group tasked with reviewing the Holidays Act has been formed, I can’t see any immediate relief in the short term, so we must continue to grapple with the existing Act for some time yet.”
Mar says the proliferation of smart devices and people spending time online will continue driving demand for work solutions that mirror the ease of access that users enjoy through personal and social applications. “Payroll technology that gives employees and managers access to the data that helps them do their day-to-day job – from being able to log timesheets, request leave or view payslips – are expected by today’s workforce.”
iPayroll’s Martin Gleeson anticipates better integration between payroll and banking services, and apps will be high on the agenda in the payroll space over the next 12 months.
The final word goes to Reckon’s Catie Cotcher, who predicts even more choice in accounting and payroll options and bespoke products and services going forward – allowing business owners to source the best solution for their needs.
“Business owners are time-poor and demanding bigger efficiencies from their cloud accounting services and with advancements in technology, the cloud accounting space is moving with them. “Development is moving at a much quicker rate and there are more cutting-edge options available.”
Cotcher’s advice is to be aware of changes in the industry and accept the ways in which they can improve your business – not hinder it. “This will lead you in the right direction.”
Managing the accounts may seem like climbing a mountain for business owners.
Here’s some practical advice for relative newbies to help bring everything down to a manageable level.
Are the business accounts ‘doing your head in?’ Are you confused by all the talk around bookkeeping and managing finances?
You’re not alone.
Lisa Martin from GoFi8ure says ultimately accounting problems can be caused by a lack of financial literacy and business finance skills – having a negative attitude towards money and not acknowledging how important it is.
Often it can be as simple as not knowing the basic rules around sending out a tax invoice, she says. “They won’t ask, they won’t go to the IRD website and type ‘what must I have on an invoice?’”
Newbies often don’t understand that tax is calculated on net
profit, not gross revenue – or what expenses can be claimed.
Never wing it. Admit you don’t know everything, and get someone to advise you, she says.
“What’s scary is they’ll sign up for an online program such as Xero and won’t think to request help.”
One outcome is people firing off invoices and collecting GST, when they’re not even GST registered. “They don’t realise the power behind the software or that they’re doing anything wrong. Or even that there’s a ‘no-GST’ setting on Xero.”
Martin says New Zealand has focused on making tax easier and simpler, with the IRD even encouraging end users to communicate directly. It’s so easy to register and start a business and get going, but people are not doing the necessary ‘checks and balances’, or facing up to their responsibilities of running a business.
“It’s like people diminish the importance of finance – but as we all know, if there’s no money there’s no oxygen and the business dies.
“Never devalue what a paid accounting professional can do for your business,” says Martin, adding that it’s important to know the right questions to ask and preferable not to have to make mistakes in order to learn.
Down to basics
While many business owners run a highly efficient ship when it comes to bookkeeping – there will always be those who struggle and won’t have the necessary level of understanding.
“Being a business owner is an evolution,” explains Martin. “Over time you appreciate the value of what a good staff member can do for the business; what a positive bank balance can do for your peace of mind; what continuous professional development does for you. It’s about staying ahead of the game.
“I find it frustrating when business owners realise that they should do things differently to get things right, but don’t. It’s like someone with heart disease being told to give up smoking, but they don’t!”
Martin says the biggest mistake business owners make in regard to their accounts is not understanding the balance sheet – for example, the difference between GST (a third-party tax being collected on behalf of the government) and income tax (a tax on net-profit). “GST is not your money. When you charge $1000 plus GST – that $150 is not yours!”
If a business earns $10,000 from a client, Martin’s advice for newbies is to be disciplined in keeping a third in the current account to cover business expenses, a third in a savings account and a third in the tax account.
“It’s the fundamental understanding of what belongs to you on that client invoice and what belongs to somebody else. Don’t get emotionally attached to that money and/or spend it.”
When it comes to choosing an accounting software platform, Martin says the market is awash with excellent products – each with its own pros and cons. While some offer add-ons, often business owners have no need for all the ‘bells and whistles’, she says.
“Discuss the options with a good accountant or bookkeeper – someone you’re comfortable with and who’s prepared to give you 30 minutes from the outset to answer your questions.
“Every business is different,” says Martin. “It’s a case of working out whether the new business client learns by seeing, sharing or thinking and feeling – this is what becomes obvious when you’re face-to-face.”
Her advice for business owners having to adjust to future changes is to have a strong support network – friends in business you can talk to in order to stay motivated through the good and bad times, or a mentor who is a good match with what you do.
“Business is a marathon, not a sprint. Feed yourself well so you last the distance.
“Have a strong business plan, and a vision that is nonnegotiable.”