Steering Towards Sustainability

The NZ government says ‘yes’ to salary sacrifice that helps people save for retirement or covers childcare but ‘no’ to anything that just cuts tax without real benefits. They’re keeping a close eye on it, to make sure it’s all about helping Kiwis, not just cutting corners on tax. That’s why salary sacrifice in New Zealand just got more interesting with Workride’s innovative scheme. It’s an environmentally friendly transportation scheme for Kiwi employees and employers alike, looking to make daily travel more eco-friendly and affordable.

Salary Sacrifice in New Zealand

What is Salary Sacrifice?

In New Zealand, salary sacrifice involves an employee agreeing to receive a portion of their pay in a form other than cash, such as higher employer contributions to KiwiSaver, a private superannuation scheme, or daycare/childcare benefits. It is a pre-tax agreement that can result in the employee paying less tax on their income. However, there are limitations and rules around its use to prevent excessive salary sacrifice as a means to avoid tax.

Not to be Confused!

Salary Sacrifice in the context of this blog is unrelated to another payroll concept of KiwiSaver Salary Sacrifice, which is also called KiwiSaver Total Remuneration. This option can also be set up in Crystal Payroll but is separate to this article, and tends to benefit the employer more than the employee.

NZ’s Salary Sacrifice Strategy

The history of salary sacrifice in New Zealand has been closely tied to tax legislation and the desire to ensure fair taxation across different income levels. Concerns about the misuse of salary sacrifice for tax purposes have been addressed by the government. In 2006, Finance Minister Michael Cullen and Revenue Minister Peter Dunne highlighted the growing misuse of salary sacrifice arrangements, particularly concerning superannuation funds, which could result in significant tax disparities. 

The ministers addressed this with the following statements:

“In many cases, high-income employees ‘sacrifice’ their salary merely to reduce their income tax. They do this by arranging a dramatic reduction in their salary in return for a proportionate increase in employer superannuation contributions, which are taxed at a rate lower than their salary,” 

That is a misuse of the tax rules on employer superannuation contributions that results in great unfairness to other taxpayers on similar incomes. In the extreme, those who take advantage of salary sacrifice may well pay thousands of dollars less in tax than others on the same income. “

To address these issues, the government considered changes to the tax rules to counter extreme salary sacrifice practices, seeking to strike a balance between encouraging retirement savings and maintaining equitable taxation.

New Zealand’s salary sacrifice strategy is cautious but deliberate. By allowing salary sacrifices that align with social welfare and economic stability, the government aims to support its citizens without compromising the tax base. This selective approach ensures that salary sacrifice doesn’t become a vehicle for tax evasion but remains a tool for financial well-being. An effective salary sacrifice scheme in New Zealand is one that’s beneficial, compliant, and does not exploit loopholes – a reflection of the government’s commitment to equitable tax practices, prevention of tax base erosion and positive societal benefits.

Payroll for Workride’s New Scheme

Using WorkRide’s new Ride-to-Work benefit scheme means there might be some tweaking required to your payroll to handle salary deductions before taxes. It’s essential for employers to have a payroll system that’s up to the task—accurately handling these deductions and keeping everything compliant with tax laws.

Simple Salary Sacrifice with Crystal Payroll

Crystal Payroll offers a solution that integrates these new payroll needs smoothly. With features  to manage pre-tax benefit deductions, Crystal Payroll takes the complexity out of the equation, ensuring employers can offer WorkRide’s benefits hassle-free. It’s the smart way to keep your payroll compliant and your employees happy with their new wheels.

Here’s how we’ve tailored our system to facilitate the Ride-to-Work scheme:

New Pre-Tax Deduction Code: We’ve created a specific pre-tax deduction code in our system for the Workride scheme. This allows employers to set up the salary sacrifice efficiently, ensuring the deduction is made before tax and in compliance with New Zealand tax laws.

Automated Deductions: Once set up, our system automatically calculates the pre-tax deductions each pay cycle. This hassle-free automation ensures that the correct amounts are deducted, PAYE is accurately adjusted, and employees’ take-home pay reflects the tax benefits of the scheme.

Reporting and Compliance: Our system generates detailed reports that track the salary sacrifice deductions for employers and employees, giving employers transparency and tax compliance. Employers can readily access these reports for their records and tax filing needs.

Ease of Setup: Employers can quickly establish the Workride scheme for their employees through our intuitive interface. The setup process is designed to be straightforward, to ensure that the salary sacrifice is implemented correctly from the start.

Support and Guidance: Crystal Payroll provides exceptional support to ensure that employers understand the setup and management of the Workride scheme within our system. Our team is equipped to handle inquiries and provide detailed guidance. You can call us at (09) 480 0123 or contact us here.

Payroll Setup for Workride Benefits: A Step-by-Step Guide