Firm Journal

Understanding KiwiSaver for employers and employees

KiwiSaver is New Zealand’s approach to a taxpayer-subsidised, personal retirement savings regime. Under the scheme, employers make payroll deductions for each employee through the Pay As You Earn (PAYE) tax system. Employees are required to save these to a KiwiSaver account. Here are some of the key features of KiwiSaver that employers and employees should be aware of.

Eligibility:
KiwiSaver is eligible for anyone under the age 65 who is a New Zealand citizen. While people over age 65 cannot join, they can remain as members if they have joined before turning 65. They are also eligible if they are entitled to live in New Zealand indefinitely, and are normally living in New Zealand at the time they join.

Employee contributions:
Employees who are members of KiwiSaver must contribute a minimum of 3% of their gross taxable pay. Individuals can choose to increase the amount to 4%, 6%, 8% or 10%, but can reduce it back to the minimum amount of 3% at any time. Gross taxable pay includes all bonuses, holiday pay and overtime pay. It does not include things such as redundancy pay, accommodation benefits, taxable overseas living or accommodation allowances.

Employer contributions:
While employees must contribute to their own KiwiSaver savings, it is also compulsory for their employers to put money in. These KiwiSaver deductions must be at the default rate of 3% of their pay. However, an employer is not required to make compulsory contributions to an employee’s KiwiSaver if they are already paying into another registered eligible superannuation scheme, the employee is under 18 years or if they are over 65 years.

Posted on 15 July '19, under super. No Comments.

What makes a successful business plan

When starting a new business, there are many elements you need to consider. Careful planning is essential to ensuring the longevity of your business, but what exactly goes into a good business plan?

A good business plan is one that is detailed. Sections should include; an executive summary, company description, market analysis, organization and management, service or product, marketing and sales, funding request and financial projections. These topics cover as much of the business as you can in the planning stage.

Showing attention to detail in your written plan demonstrates a commitment to the business going forward. When writing a business plan, there are a few ways to ensure you are creating the best guide for your idea. Researching the industry and other companies in the market you are looking to step into can give you an insight into more than just the competition. As a business owner, it is your responsibility to know how and if audiences will respond to you.

If you aren’t presenting your plan to investors or potential partners, determine what purpose your business plan will serve. A good business plan can be used not only as a sales document but a map for the business into its future. Writing a business plan that makes projections for the first five years can keep you on track and show you areas in which you need to focus on.

A business plan is a guide to help you create and maintain the best business you can. Even if things don’t go exactly as planned, a successful business plan is one that teaches you the things you want to get out of the business and ways in which you can achieve them.

Posted on 15 July '19, under business. No Comments.

Using your tax return wisely

Getting your tax refund back is exciting, but as tempting as it is to splurge, consider other ways you can put that money to good use. It is easy to get caught treating your return as extra money when you shouldn’t see it any differently than your regular paycheck. Give the money a purpose by thinking about your personal financial situation and determining your needs.

Emergency fund:
An emergency fund can make all the difference if a difficult financial situation comes up, acting as a backup in the case of an emergency such as losing your job or medical costs. Building an emergency fund with enough money to cover at least three months worth of expenses is a good starting point. Make sure the money is added to a high-interest savings account to utilise compound interest. If you are contributing regularly to this fund, adding money from your tax return can boost it above schedule.

Make debt repayments:
With a bit more money at your disposal, now is the time to make repayments on debts you may have. Start with the higher interest debts and work down, your interest repayments will drop when you lower your outstanding balance. These debts can be things like credit cards, personal loans, outstanding bills or mortgage repayments.

Posted on 8 July '19, under money. No Comments.

Improving efficiency in your business

As a business owner, making the most of your day to optimise productivity is crucial to your success. The most efficient businesses are those that can create more with less and are driven by highly motivated employees and inspiring leaders. To maximise efficiency within your business, it is necessary to understand the importance of time management, organisation, and managing resources.

Tackle the hardest things first:
Ticking off the jobs that will require the most effort are usually done more effectively first thing in the morning. Also known as ‘eating the frog’, this can help you to avoid procrastination. Once you have done these tasks, all subsequent jobs will seem much more manageable, allowing you to get into a more productive workflow.

Avoid multitasking:
While trying to do many jobs at once may seem like an important skill for increasing efficiency, in reality, it may have the opposite effect. Attempting to multitask can result in lost time and reduced productivity, as you are not focusing properly on each task. Instead, consider making a habit of committing to a single job, completing it thoroughly, and then move on to the next project.

Set manageable goals:
It a common problem for business owners is not having a solid understanding of whether their employees are performing highly or not. This can be caused by a lack of achievable and motivational goals. By offering manageable deadlines for tasks to be completed, it can provide your staff with an incentive to stay on track. Giving clear direction to your employees can assist in clarifying your expectations of the business, helping to increase efficiency.

Posted on 8 July '19, under business. No Comments.

What to know about the IRD’s new automatic tax assessments

From 20 May 2019, Inland Revenue has begun to automatically assess the 2019 tax position for over 380,000 tax-paying individuals. These assessments are a part of the IRD’s business transformation program, which aims to modernise and streamline the process of New Zealand’s tax system.

These new assessments will finalise the end-of-year information for the annual tax year ending 31 March 2019. Individuals that are affected will be those that have a reportable income only, such as salary or wages, interests or dividends, and NZ super. The end-of-year assessment uses employer and bank information to show you how much you’ve earned and how much tax you’ve paid, as well as providing you with a tax calculation. Individuals with a myIR account will be notified when their tax assessment is ready to view.

Upon receiving an automatic tax assessment, you should check it immediately as the IRD will need to be informed of any discrepancies or income that is not shown in the assessment. You will have until your terminal tax date to do this, which is 7 February 2020, or 7 April 2020 if you are using a tax agent.

No further action is needed for tax assessments that are correct, as the IRD will automatically pay any refund directly into your bank account within 48 hours of the assessment completion. In cases where tax is owed, Inland Revenue will confirm the amount that is owed and the due date. There will be a range of payment options available to individuals, including payment plans.

In cases where you have other sources of income, do your own tax return, or are self-employed, then you should not receive an automatic assessment and will still need to file your own income tax return. Consulting a tax advisor for further assistance may be helpful in these circumstances.

Posted on 8 July '19, under tax. No Comments.

The art of reinvention

Small businesses often rebrand or reinvent themselves to keep up with marketplace trends. Knowing when to let go of an idea so you can grow is a smart trait for a modern business owner to have. Those who resist change and leave it too late to reinvent risk stumbling behind and even failing. Instead, businesses should focus on a proactive approach to growth for optimal performance and success.

Know when to reinvent:
A new idea may seem exciting and different but rebranding without properly considering how it will affect the business can doom an idea before it can take off. Look at your reasoning for wanting to change, is it the market? Has the economy shifted? Are you not challenged anymore? All are valid reasons for wanting to reinvent your small business but practicality is key. Know your means and what it will take to rebrand.

Continually forecast:
Industries are continually shifting, competitors introduce new products, customer needs change and technology is constantly transforming the way business is performed. Anticipating market changes is essential to be a competitive leader in your industry. High performing business owners understand that remaining competitive means you need to expect changes and prepare as such.

Focus on strategy:
Strategic planning is imperative to make reinvention possible. Businesses need to be able to detect shifts in their industry, ideally before they happen. The best way to predict these shifts is to involve line managers, frontline employees, store managers etc into the strategy process, as they often pick up on insights business owners can easily miss. For a business to reinvent itself, it needs a permanent strategy which continually scans the market for unsolved problems and untapped customer needs.

Posted on 27 June '19, under business. No Comments.

What to consider in an employee share scheme

Employee share schemes (ESS) provide employees with a financial share in the organisation that they work for. They can be offered by organisations as a way to grow their business by attracting, retaining and motivating their employees.

How they work:
ESS gives employees shares in the organisation they work for at a discounted price, and the opportunity to purchase shares in the future. The discount refers to the difference between the market value of the ESS interests, and the amount paid by the employee to acquire them. This discount forms part of an employee’s assessable income, and will need to be included in their tax return.

Employee share purchase plans offer eligible employees the chance to purchase shares from their employer, often through a loan. The shares can be paid through a salary sacrifice plan over a set period, or by using the dividends received on the shares. Employees who are on a higher income may be eligible to receive shares as a performance bonus or as a form of remuneration instead of receiving a higher salary.

Possible limitations:
There may be restrictions on when employees can buy, sell and access their shares through an organisation’s share scheme. For example, employees may have to get permission from the business before buying or selling their shares, or there could be an annual window during which shares can be bought or sold.

What to consider:
Employees should take time to research the organisation they are considering participating in an ESS with. This will help determine how well the scheme is doing, and whether the shares are likely to increase in value. To avoid losing a large part of your investment portfolio, consider purchasing shares that are part of a diversified investment plan.

Before entering into an employee share scheme, consider seeking professional financial advice that is specific to your circumstances.

Posted on 24 June '19, under money. No Comments.

How bullying brings your workplace down

Bullying is a serious issue in workplaces and can affect your business on many levels. Workplace bullying is where repeated and unreasonable behaviour is directed towards an individual or group of employees. It is considered to be workplace bullying where it poses a risk to health and safety.

Reduced productivity:
As people don’t perform well in high stress and anxiety situations, businesses will face a loss of productivity due to workplace bullying. When workers are distracted by bullying, research suggests that productivity could decline by 40%. Employees who are being bullied may also experience a loss in motivation, which will cause them to avoid putting in any effort or time into their work.

Higher staff turnover:
People that do not feel comfortable at work due to the effect of bullying will be inclined to look for work elsewhere. This can cause a business to have high rates of employee turnover, which will have significant economic impacts on the employer. This includes the replacement costs associated with recruiting, hiring and training new staff. A culture of bullying within a workplace can also create low morale, making the business even more susceptible to high turnover rates.

Financial impacts:
There can be many legal costs and other financial impacts associated with bullying within a business. In some cases, employers may be found to be liable for the bullying that takes place within their organisation. They may be required to pay for damages, costs of legal proceedings, or even settlements in more extreme cases. Further financial impacts may be associated with rehabilitation costs if the bullied worker chooses to stay with the business. These costs may include counselling fees, team-building activities or anger-management training.

Posted on 24 June '19, under business. No Comments.

Good record keeping practices

Starting your business with a good record keeping system can help you track your business performance, meet reporting responsibilities and access financial history with ease. Since different rules apply to different types of documents, the length of time that a business needs to retain documents depends on what the documents are. Some businesses may need to keep documents indefinitely.

The seven year principle is recommended as a base due to the fact that seven years is sufficient time for defending tax audits, lawsuits and potential claims. Government departments and organisations, such as the Australian Securities and Investment Commission (ASIC) and The Fair Work Ombudsman (FWO), require company and employee records to be kept for seven years.

Owners should note that there are some circumstances where it may be required to keep documents for more than seven years. For example, documents relating to intellectual property rights, such as trademarks and copyright should be kept indefinitely by businesses. These documents should be retained for as long as the rights in the intellectual property exist.

Financial, legal, employee, policy and procedural records are the main categories of documents that a business will need to retain. Keeping good records can save you a lot of time and money when a situation arises as you may need to rely on these files if disputes or other issues appear in your business.

The general standards for record keeping in Australia are as follows, documents need to;

  • Be in writing, either on paper or electronically.
  • Be written in English.
  • Explain all transactions.

There are benefits and risks to storing files both on paper and electronically. The most important thing to remember, regardless of storage method, is to back up your records. A combination of both methods can ensure you have documents available when needed.

Posted on 18 June '19, under business. No Comments.

Why you should check your KiwiSaver tax rate

Inland Revenue has identified that 450,000 people have been paying the wrong rate of tax on their KiwiSaver accounts and other managed funds. This highlights the importance of understanding what rate of tax you should be paying on your KiwiSaver, and to check that you are paying the correct amount.

The implementation of a new automated tax system has allowed the IRD to detect more clearly what rate of tax that people should be paying on their KiwiSaver accounts and other investment savings. The IRD will be contacting those who have been paying the incorrect prescribed investor rate (PIR) on managed funds like KiwiSaver.

The PIR determines how much tax you pay on your portfolio investment entities (PIEs). Members and their employers both make contributions to KiwiSaver, before the fund manager then invests those both locally and overseas. Any returns are then taxed by the IRD. The prescribed guideline rates are 10.5% for those earning a taxable income of below $14,000, 17.5% for those earning between $14,000 and $48,000, and 28% for those earning over $48,000.

To avoid paying the wrong tax rate, members should work out their estimated income, which will then tell you what your PIR rate is likely to be. You may consider contacting your fund manager to further check the details of what tax rate you are paying and to inform them of your correct PIR, as your income earned from a fund may be taxed at the default rate of 28% without your knowledge.

For further information on taxable income, PIRs and to determine your correct PIR, you should consult your professional tax advisor.

Posted on 18 June '19, under super. No Comments.