Tag Archive for: Savage & Savage Chartered Accountants

AIM Method of Calculating Provisional Tax

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Many of our clients may have seen or received information from IRD about the AIM method of Provisional Tax calculation

This method will become available for use on 1st April 2018. We are not recommending it to our clients for the following reasons:

  1. Most SMEs (Small Medium Enterprises) qualify to use Standard Provisional Payments without any Use of Money Interest
  2. Depending on your business you may have to do things such as a physical stock take every two months
  3. While IRD are promoting that this is an easy method to use in fact, in our opinion, it is not and also the option is not available through Xero and MYOB for clients to use – it is only available to firms such as ours to use.

If you want to discuss the AIM option please give Sari or Anna a call.

Personal Liability for Employment Breaches

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Most business owners, directors, managers and employees are unaware that they can be personally liable for penalties and the payment of legislative entitlements. A person who incites, instigates, aids, or abets any breach of an employment agreement is personally liable for a penalty of $10,000 for each breach.

Get the IRD payment dates right

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We would like to remind everyone to make sure that when you are making tax payments to IRD they check that you have selected the correct tax type (e.g. INC for Income Tax, GST for Goods & Service Tax, DED for employer Deductions that include Kiwisaver contributions as well as PAYE etc).

Also, it’s very important that you select the correct period and year that the payment is going to. Most banks have a ‘Pay Tax’ or ‘Pay IRD’ tab in their on-line banking facilities so we suggest you follow the steps using this rather than setting IRD up as a regular payee.

Potential consequences of getting it wrong:

For example, if you are a company and you accidentally pay 2018 provisional tax to the 2017 year, and your 2017 annual accounts have not yet been completed, IRD will not allow this payment to be transferred to the 2018 year unless we fill out additional paper work, it will be applied to the 2017 year and that means it will show as overdue in your 2018 income tax account.  So please chose the year carefully.

Nelson Pine Industries Business Awards

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At this year’s Nelson Pine Industries Business Awards hosted by the Nelson Tasman Chamber of Commerce two of our clients won awards; Emma

Heke won the Innovation Award for her range of specialty herbal teas and Shane & Annette McCrae from McCraes Blinds and Drapes were awarded a special Business Excellence Award in the large business category.

A huge congratulations to both businesses and the very hard working owners.

It is worth noting that Emma completed the year-long Barbican Training business course before she started her business, this meant she had a full business plan, finance plane, marketing pan and the skills to manage her new business. It just goes to show if you start off on the right track with a new business success can be just around the corner.

 

Employer Owes $2.4 Million To Employees

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In a recent investigation into wage payment irregularities at SOE Landcorp, the Labour Inspector found significant issues. The Inspector determined that over the last seven years Landcorp had been incorrectly calculating the entitlements of approximately 1,400 employees.

There appear to be two main areas where Landcorp incorrectly calculated the entitlements:

a) Landcorp did not include the employee’s accommodation allowance into the calculation of gross earnings. This had a flow on impact to the calculation for sick, annual, bereavement and public holiday leave.

b) Landcorp breached the minimum wage for employees who were on salary, but worked long hours during peak season.

The amount owed to 1,400 former and current employees is approximately $2.4 million.

Employers can take several lessons from this decision.

Firstly, even if the employer uses a payroll system to calculate entitlements, it is up to the employer to ensure that the payroll system is calculating this correctly. In Landcorp’s case the payroll system incorrectly excluded the accommodation allowance from the gross salary calculation. MBIE have stated that at the end of June 2017 it has 140 cases which it categorised as payroll audits. Of those 118 had been investigated which led to 53 enforceable undertakings, 29 improvement notices and 2 cases lodged with the ERA.

Secondly, where employers have salaried employees on lower salary levels (less than $55,000 at present) and those employees are working long hours over a peak period of work, the employer must calculate the weekly/fortnightly pay ensure that employee is paid above the minimum wage for every hour they work in that week/fortnight.

Precinct Dining Co. Motueka

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Motueka has had an important role in this region’s food industry for many years, primarily as a place food is grown and processed, but in recent times it has also become home to some wonderful eating establishments including Precinct Dining Co.

Located on the corner of High Street and Greenwood St in part of the Countdown building, Precinct Dining Co was established in December 2015 by Tim and Kylie Andrew, Tim is the chef and Kylie “does everything else which is about 80% of running a hospitality business” according to Tim.

Last week I sat down with them over one of my favourite drinks, a double shot long black, and we talked about why they chose Motueka as a place to start a café.

They told me that Motueka didn’t have many places like the one they envisaged, in the past there were plenty of places to eat but nothing offering a modern dining experience, in recent years that has changed a lot with several places making great food delivered with very good service.

In the case of Precinct they wanted to create a place that had a modern feel to the food and a dining environment that wasn’t too big so they could manage it pretty much by themselves.

“Instagram, social media and tv shows like Master Chef have helped change people’s expectations of food, it doesn’t have to be steak, eggs and chips or bakery foods, food is much more exciting now and the people of Motueka appreciate it just as much as anyone else.”

Something else that drew them to Motueka is the fact it is small town New Zealand with a very high summer tourist density and quieter winters, “it is absolutely full-on in summer and we get a bit of time off in winter so we can have a lifestyle you don’t get when you are working in the restaurant scene in big cities.”

While Tim is a chef and Kylie has a qualification in Bio-Medical Science they have both worked in the hospitality sector for some time; Tim trained in Queenstown at Skyline where he had an apprenticeship, “we were doing 1500 meals a day but it was all buffet style food, we did the same thing every day and it made me realise I don’t like doing buffet, but it was so hard to get an apprenticeship when the opportunity came up I jumped at it.”

He is a huge supporter of the apprenticeship programme, most people train at polytechnics or cooking schools these days but working as an apprentice has a lot of benefits, “you finish with a qualification and without a student debt because you are learning on the job, earning money while learning and getting real world experience.”

Tim has also had several apprentices over the years including Beau Lyttle who is working with him now and will be finished his apprenticeship at the end of this year.

As well as working at Skyline in Queenstown Tim also worked at the Millenium Hotel for the last year of his apprenticeship before moving to the Shoreline café at Kaiteriteri for a summer as Chef de Partie then on to his first Head Chef role at the Mecure Hotel in Dunedin which is where he decided working in a hotel kitchen wasn’t for him either.

So it was overseas for a few years, firstly to Orpheus Island, a high-end luxury lodge off Townsville, “I moved there to chill out a bit after the crazy hours of working in a hotel but it wasn’t as relaxing as I hoped, I was promoted to head chef after three days.”

His next stint working in a resort was at Peppers Palm Bay, another Island in the Whitsunday’s, that the owner ended up turning into his house on the private island.

After Peppers he ran a ski resort in Australia at Threadbo where the backpacker accommodation slept 300 people, “I was up at 2.30am to cook breakfast, then it was up the mountain to the other part of the resort for lunch service, a bit of snow boarding then back down the hill to feed everyone for dinner. It was a real challenge, I couldn’t do it now but back then I was living on coffee and adrenalin.”

In 2010 he spent another summer at Shoreline before he headed overseas to follow Kylie who was also working at Shoreline for the summer, “her mother was keen for her to spend some time at home for a while but she met me and I ruined her life by hooking her into hospitality, she is one of those people who is naturally great at hospitality” says Tim.

Kylie had an internship at Disney World so Tim followed her and he ended up working as a cooking teacher on Royal Caribbean Cruise Lines in the Caribbean, they sailed out of Miami every week with a new load of passengers and one of the things the cruise line offered was cooking courses.

“That was a cool job but hard work, six months on and 10-12 hour days teaching every day Americans who had no idea how to cook simple stuff, one lady had never seen a fresh carrot, she had only ever seen frozen carrot slices, it blew my mind how little some of these people knew about food let alone how to cook it, in some cases it was basically how to boil water.”

After the short US stint they moved back to New Zealand and Queenstown where they both worked in the then new Rata restaurant when it first opened.

After Rata it was back to Shoreline as the head chef and front of house manager. The couple used their previous experience at Shoreline and the experience working in other places to redesign the kitchen to give it a better flow, making it easier to serve hundreds of meals a day.

“It was a great place to work until the management board changed and the focus changed to serving as many people as possible in the hectic summer period; we had the attitude of ‘let’s serve everyone and make everyone happy’ and that changed to ‘let’s get as many people through the doors as we can’ so we couldn’t focus on the quality of food and service that was so important to us.

“We totally understand they wanted to generate as much income as possible at the busiest time of the year but it didn’t suit our philosophy so it provided the impetus to open our own café where we can focus on what we want to provide customers with, we take our time now and serve great food made with love rather than just being a production line.

“Having Kylie run the front of house is fantastic, she is very level headed and sees things differently to me, I have an opinion as a chef and she has an opinion as a customer would see it so we have complimentary skills, I don’t have anything to do with front of house and she doesn’t have anything to do with the kitchen. I think having quite different roles and respecting one another is the reason we work so well together in the business.”

This couple love what they do, especially giving young people an opportunity to do something that isn’t university, “it seems that at many schools kids are pushed to be successful by going to university but you don’t have to, university isn’t the only way to make a great future for yourself.”

In their first year in business they won a Beef and Lamb award and while they are enjoying what they we are doing and will be there for a while Tim says there will come a time we will move on to something else so Kylie can pursue her medical career or whatever she decides to do, “she has very much helped me get everything I wanted so it is only fair to do the same for her.”

www.precinctdining.com

“Confrontational” Parking Warden Ordered to Pay $11,500

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The Employment Relations Authority (ERA) ordered Yoon Cheol Hong to pay Auckland Transport (AT) $11,500 following a determination that found Mr Hong was not unjustifiably dismissed from his job as an Auckland Transport parking officer, neither was he unjustifiably disadvantaged before his dismissal.

Mr Hong worked as a parking officer, patrolling Auckland city streets and issuing infringement notices for vehicles parked illegally.

AT required, and trained, its officers in various ‘de-escalation’ techniques to manage members of the public who abused or threatened parking officers. The primary technique was described as ‘detach and walk away’.

AT held concerns because Mr Hong made comments which confirmed AT’s fears that Mr Hong would, while on patrol in the streets, sometimes challenge abusive members of the public rather than ‘detach and walk away’.

The incident that triggered the dismissal process was when a man swore at Mr Hong and threatened to break his neck after getting a parking ticket. Mr Hong called for Police assistance during the incident. AT’s concern was that Mr Hong had refused to follow lawful and reasonable instructions issued by them which placed his own health, safety and welfare together with some of the wider parking team at considerable risk which was completely unacceptable to them.

Mr Hong had told AT when he reached a ‘trigger point’ he would not observe de-escalation methods due to his own views on what was and was not tolerable. AT were concerned that Mr Hong was likely to respond in ways that made inflammatory or potentially inflammatory situations worse. This meant AT had lost trust and confidence in Mr Hong.

The Authority said that it was within the range of reasonable responses for AT to conclude what Mr Hong deliberately did, and would likely continue to sometimes do, was contrary to instructions and was serious misconduct.

Auckland Transport sought $36,500 from Mr Hong to pay back what it had spent to defend itself in the unjustified dismissal case; $35,000 for a two-day investigation meeting and $1500 in costs to oppose the interim reinstatement application.

Auckland Transport’s actual legal costs were said to total $55,868.

Over the course of the employment dispute, Auckland Transport had offered Mr Hong two settlement offers prior to the case being heard by the Authority. Both offers, one for $12,500 and another of $15,000 were not accepted.

The authority ruled Mr Hong’s refusal of these settlement offers were cause for a “steely” approach in awarding costs, hence the award to AT of $11,500.

Paying contractors or working as a contractor

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IRD’s latest update to tax agents includes some clarification around contractors and withholding tax.

There is a misunderstanding that all contractors are now subject to withholding tax. This is not the case. The change is only for contractors hired by a labour hire business.

From 1 April 2017, contractors working for a labour hire business under a labour hire arrangement must have withholding tax deducted from their income.

Activities and examples of a labour hire business
One of the main activities of a labour hire business is arranging for a person to perform work or services directly for:

  • its clients, or
  • clients of another person.

Examples of labour hire businesses are:

  • an on-hire business
  • an employment agency
  • contract management, or
  • recruitment services.

Withholding tax rate
The standard withholding tax rate for this category is 20%. However, a contractor may choose a lower rate (the lowest rate is 10%) when they fill in their Tax rate notification for contractors (IR330C) form.

They can also apply to us for a 0% special tax rate by filling in a Special tax code application (IR23BS) form. We review their tax compliance history before deciding if we’ll issue a 0% rate certificate.

Sub-contractors

Businesses (eg an engineering business) hiring sub-contractors don’t come under the new legislation. The sub-contractors wouldn’t be paid schedular payments so withholding tax isn’t taken out of their payments.

See some examples of what is and is not a labour hire business

Minimum Wage Increase is Just the Beginning

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This article was published on the 2nd November by Chapman ER and sets out some of the employment related financial issues employers are going to face under the new Labour Government.

We recommend you stay up-to-date on matters that effect employers by subscribing to the Chapman ER newsfeed by clicking here and completing the request form.

The minimum wage is increasing. It already feels like old news, particularly in view of the stream of new government announcements. However, that is just the start of measures likely to increase wage costs. The Labour led government has also stated they will change the Equal Pay Bill the previous National government had proposed to prevent a case similar to the $2b aged care workers’ settlement. They are also introducing ‘Fair Pay Agreements’ which will set out minimum employment conditions across industries and sectors for terms such as wages, allowances, weekend and night rates, hours of work and leave arrangements. It sounds like reverting to old Award days to me.

If you are already gulping for air and deciding you will only engage contractors, be aware of the fish hooks of that approach. Within the first 12 months in government Labour has set out to extend the right to bargain collectively to contractors who primarily sell their labour, and investigate measures to improve job security for people in ‘precarious forms of employment’ which includes contracted and sub-contracted workers.

If you are now thinking you will engage youth workers as a more affordable option, there is no respite there. The Labour manifesto states they intend to abolish youth rates within 12 months.

To recap briefly on the minimum wage – it will increase to $16.50 from 1 April 2018. That’s a 4.8% increase.

In the Coalition Agreement it has also been stated that the minimum wage will increase to $20 per hour on 1 April 2021, with incremental steps in between. That is a 27% increase over 4 years. For a full time employee on minimum wage that is an annual salary of $41,600.

What does this mean for employers? To state the obvious, it will increase costs. For employers with proportionally more employees at or near the minimum wage level, that increase in cost will be proportionately higher. Industries that traditionally pay in the lower pay brackets are accommodation & food, wholesale & retail trade, and healthcare & social assistance. (Data source: Treasury)

If you currently have a wage differential between positions, for example a junior line operator, a senior line operator and a supervisor, your employees will want to maintain the differential. As such it is not only minimum wage earners who will expect a significant wage increase.

Unfortunately increasing minimum wage does nothing to improve productivity. I have yet to see employees working harder or smarter as a result of a pay increase. So you are not going to get better outputs as a result.

Some of the key options are:

  1. Absorb the increased costs by accepting lower profits (or in many cases operate at a loss).  One impact of lower profits is a reduction in investment in capital (as return on capital is reduced).
  2. Reduce costs. As labour costs have increased, reducing staff may be the necessary answer, particularly if wages is a high percentage of costs.
  3. Pass on the higher wage cost to customers through increased prices.
  4. Implement productivity improvements (e.g. technology, systems) so you can reduce employee numbers, and/or improve profit margins.
  5. Explore the possibility of changing to a high wage, high value business model.
  6. Sell up, leave the country or hide under a rock for the next three years.

It is important employers start to consider the impacts on their organisation now, and plan for it in advance. Increasing prices incrementally is often more palatable to customers than one large increase. Putting in place plans to increase productivity needs to happen before the business is in trouble. If you need to restructure your staffing this takes time, and again is better done before the business is in distress. Just keep in mind Labour has also stated they want to begin consultation on improving minimum redundancy protection for employees.

And the changes keep on coming.

How to Pay Employees for Upcoming Public Holidays

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Christmas Day and New Year’s Day fall on a Monday this year with Boxing Day and the Day after New Year’s falling on a Tuesday. Labour Day is always on a Monday and falls on 23 October this year.

If you are unsure how your employees should be paid over these statutory holidays, first refer to their individual employment agreement to check that it doesn’t provide for any terms in addition to the statutory minimum requirements. Then establish which of those stat days would normally be a working day for them.

When a public holiday falls on a day that your employee would usually work, regardless of how long they’ve been working for you, then they’re entitled to a paid day off.

Employees are only required to work on a public holiday if it’s a condition written into their employment agreement. If they agree to work, you must:

–          pay them at least time and a half and

–          give them an additional paid day off (a day in lieu).

Next the following applies:

When the Public Holiday would normally be a working day for the employee:

If the Public Holiday that falls on the Monday or Tuesday is ordinarily a working day but the employee does not work then they are paid for that Public Holiday the same as for a normal working day i.e. at their relevant daily pay.

If the Public Holiday that falls on the Monday or Tuesday is ordinarily a working day and the employee does work on those days, then they are paid time and a half for the hours they work, and they are also entitled to an alternative day off (lieu day).

When the Public Holiday is not usually a working day:

If the employee does not normally work on the Public Holiday, in this case the Monday or Tuesday, then they do not get paid at all for those days.

If the employee does not normally work on the days the Public Holiday falls but then does work on those days, they are entitled to be paid time and a half for the hours they work, and not entitled to an alternative day off (lieu day)

If you require further information regarding paying employees for Statutory Holidays click here.