IR335 Inland Revenue Employer's Guide - Part 5

Contents  |  Responsibilities  |  Records  |  Other Payments  |  Penalties  |  Special Workers

Part 5 - Special types of workers

This part explains what you need to do for the following types of workers

Casual agricultural workers	Partners in a partnership
Commission agents	Piece workers and outworkers
Directors	Shareholder-employees in close companies
Drovers and musterers	Shearers shedhands and shearing contractors
Election day workers	Spouse - wages paid to your wife or husband
Fishermen	Students
IR 56 taxpayers	Subsidised workers
Jockeys and trotting drivers	Workers receiving the community wage
Musicians dance bands and orchestras	Labour only contractors
Non-residents

Casual agricultural workers

Casual agricultural workers are persons engaged in casual seasonal agricultural work on a day-to-day basis for up to three months.

They are taxed through the PAYE system at a flat rate and use the tax code CAE on the IR 330 declaration.

Note: "Agricultural contractors" are subject to withholding tax. Refer to the back of an IR 330.

Commission agents

For agents who receive commission only, tax the gross commission as a withholding payment.

Some agents get a salary or other fixed remuneration plus commission from the same employer.

Whether you deduct PAYE or withholding tax from any payment depends on whether the agent is an employee or is self-employed. For more information on employment status, refer to the Who is an employee? section.

If an agent is an employee, add the gross commission to the fixed remuneration for the period in which it was paid. Calculate PAYE using the current PAYE tables.

Directors

Fees paid to directors are generally withholding payments. Tax the fees paid using the correct rate of withholding tax. Some directors who are shareholder-employees of the company may pay provisional tax.

Drovers and musterers

For employees doing occasional droving and mustering work, calculate the PAYE using the weekly PAYE tables.

If they supply their own dogs, horses or saddlery and receive allowances, deduct the amount of allowances paid up to the maximum in the table below before calculating the PAYE.

Type of reimbursing allowance		Maximum deduction per week
Dog		$1 for each dog supplied max. allowance $4
Horse and saddlery		$ 1.50
Horse only		$ 1.00
Saddlery		$ 0.50

Deduct withholding tax from the gross payments made to a droving contractor - see the back of an IR 330 declaration.

Election day workers

Election day workers are people employed on a casual basis immediately before, on, or immediately after polling day. Election day workers are taxed through the PAYE system at a flat rate and use the tax code EDW on the IR 330 declaration.

Fishermen

Fishermen paid at an hourly or daily rate are employees. Deduct PAYE from their wages using the PAYE tables.

Please note that "share fishers" are subject to withholding tax - see the back of an IR 330 declaration.

Ensure you clarify whether a fisherman is an employee or self-employed.

IR 56 taxpayers

IR 56 taxpayers are workers whose employer is not required to deduct PAYE from their earnings. They are responsible for paying their own PAYE tax, however, they are not classified as self-employed.

Examples of IR 56 taxpayers are

IR 56 taxpayers have to complete and send in IR 345 and IR 348 forms with their payments each month. For further help see the IRD booklet IR 56 taxpayer's handbook IR 356 available from the IRD Online Library on the IRD website.

Jockeys and trotting drivers

Wages paid to apprentice jockeys or probationary drivers are liable for PAYE. Deduct withholding tax from any riding or driving fees that are not wages.

The withholding tax rates are listed in the PAYE tables and on the back of an IR 330 declaration.

Musicians

If bands or other entertainers are actual employees, you must deduct PAYE from payments made to them. Each performer in a band must fill in an IR 330 declaration.

Musicians hired on a casual basis are usually paid withholding payments. Every performer in a group must fill in an IR 330 declaration using a WT tax code. However, if payments are made to a spokesperson of the group, only one IR 330 is needed. It must be made out in the name of the spokesperson, not the name of the group.

If the band is registered with Inland Revenue as a partnership, show the IRD number of the partnership on the IR 330 declaration using a WT tax code.

Door charges at hotels and taverns

Where a band member collecting door charges is accompanied by a hotel employee and the employee performs the licensing responsibilities of the licensee or manager (for example, allows or restricts entry), do not deduct withholding tax from the door charges.

Where the band member is not accompanied by a hotel employee, withholding tax must be deducted from the charges made.

Non Residents

Generally, a person who comes to New Zealand, stays less than 183 days in any 12-month period, and who does not have an "enduring relationship" with New Zealand, is taxed as a non-resident.

A non-resident is liable for New Zealand tax on income for personal services performed in New Zealand, and other income from New Zealand sources.

FOR MORE HELP

If you want more information about tax residency, see the IRD booklet "New Zealand tax residence which is available from the IRD Online Library on the IRD website.

Non resident employees

Employers must deduct PAYE from wages paid to non resident employees in the same way as for resident employees. However, a non resident may be entitled to an exemption from New Zealand tax, either under a double taxation agreement, or under the 92-day rule.

In general, the 92-day rule applies if all of the following criteria are met

If you need more information about the 92-day rule call the IRD on 0800 377 772.

Whether or not a non resident qualifies for the exemption may not be obvious when the person arrives, or may not be established for some time. This means that if PAYE is deducted, it may have to be refunded at a later date. Also, if a foreign tax administration requires tax payments, employers may have to make double deductions.

The law gives employers the option of providing a bond or other form of security to Inland Revenue. Please contact Corporates in Wellington for a copy of the standard bond agreement. If another form of security is offered, it must be acceptable to Inland Revenue. Giving the bond or security ensures that Inland Revenue can recover the PAYE if the employee becomes liable and payment is not made.

To apply for an exemption, contact Corporates at the IRD Wellington office. If Inland Revenue agrees, you may lodge a bond or security. If Inland Revenue accepts the bond or security, you can stop deducting PAYE until the employee clearly becomes liable for tax in New Zealand. Please note that you must deduct PAYE until Inland Revenue accepts the bond.

If it turns out that the employee is not entitled to an exemption, you will have to pay the PAYE on past wages paid. They will tell you when the payment is due. If the person is employed over more than one income year, you must apportion the PAYE to the years that the income was actually earned.

Once the PAYE is paid, Inland Revenue will release you from the bond. However, if an employer does not pay the PAYE owing on the non-resident's wages, the IRD will exercise their rights under the bond.

If it becomes clear that the employee is exempt from New Zealand tax, Inland Revenue will release you from the bond.

Contact Corporates if you would like more information about these bonds.

Non-resident contractors

Deduct tax from payments to non resident contractors. Deduct withholding tax from payments to individuals who are not your employees, and to companies, for specified contract activities or services.

Specified contract activities or services are

FOR MORE HELP

Some contractors may be entitled to an exemption from tax, or may have a special rate certificate. If you have any questions about how to treat non-resident contractors, contact the IRD Non-Resident Contractors Team.

Non resident entertainers

Deduct withholding tax from payments to non resident entertainers, except from payments for a performance

If you have any questions about non resident entertainers, call Inland Revenue Corporates, Auckland, on

Interest

Any interest, dividend or royalty payments to a non-resident are liable for non resident withholding tax. Details of the rates of tax and method of payment are in the Non resident withholding tax payer's guide IR 291.

Partners in a partnership

A partnership (except an investment partnership) may make payments to a working partner for services personally performed. These payments are treated as salary or wages if all of the following apply

These services may be of any kind needed for the partnership's business.

The payments are treated as salary and wages for the period between the date the contract became binding and the date the contract is terminated. The partnership must deduct PAYE and pay it to Inland Revenue. The partnership must also pay an ACC residual claims levy on these payments. This is calculated on the partnership's IR 68A.

Piece workers and outworkers

If the payment is for piece work or is based on output, and is solely for personal services, deduct PAYE as usual.

If you do not pay salary or wages regularly, average the taxable earnings over the number of weeks in the working period. Treat any odd days as an extra week. Calculate the PAYE for each week separately and add up the PAYE to arrive at the total amount to deduct.

Payments to a labour-only contractor in the building industry are liable for withholding tax.

Check whether a worker is an employee. You may need to get a determination from Inland Revenue to establish whether an employment relationship exists.

Shareholder-employees in close companies

Deduct PAYE from

Do not deduct PAYE from irregular salary payments made to a shareholder-employee.

Include all shareholder-employee salaries where PAYE has not been deducted in the IR 4 company tax return.

Shearers shedhands and shearing contractors

Shearers and shearing shedhands have PAYE deducted at a flat rate using the tax code CAE.

Shearing contractors have withholding tax deducted. For the current tax rates see the PAYE deduction tables.

Combined farming and shearing

When a shearer does ordinary farm work because shearing is impossible, include any wages for this work with shearing wages.

If a farm worker employed for normal farm work also does shearing work at shearers' rates of pay, treat the shearing wages as part of the normal pay for the pay period. Calculate the PAYE using ordinary PAYE deduction tables. Do not use the special rate for shearers and shedhands.

If a farmer does part-time shearing for another farmer, an IR 330 declaration should be completed and PAYE deducted as for shearers using the CAE tax code.

Shearing contractors

Here are some of the situations you may come across if you have shearing contractors and shearing gangs working for you

1. The contractors pay their own shearers/ employees and show you a current certificate of exemption IR 331.

In this case do not deduct tax - pay the full contract price to the contractor. The ACC residual claims levy is the responsibility of the contractor who deducts PAYE at the current rates from wages paid to the employees.

2. The contractors pay their own shearers/ employees and do not show you a current IR 331.

You must get an IR 330 declaration from the contractor who will use a WT tax code. Alternatively the contractor may have a special tax code or deduction rate IR 23 certificate. If you do not get an IR 23 or IR 330, or the IR 330 is not fully completed, deduct tax at the no-declaration rate. The contractor must deduct PAYE from wages paid to the employees, and is also responsible for the ACC residual claims levy.

3. You pay the wages of the contractor's employees. In this case treat them as if you were employing them direct.

4. Farmers who employ open-shed shearers or shearing shed-hands must follow these steps

Contractor pays wages to shearers

If you are a contractor and employ shearers, you must deduct PAYE from any payments you make.

Allowances

Travelling allowances and hand-piece allowances are non-taxable.

All other types of allowances, including the value of free meals and board, are taxable. Add the value of these allowances to wages. Show any tax-free allowances paid in your wage book.

Spouse - wages paid to your wife or husband

The term spouse means a husband, wife, or de facto partner you are living with. It does not mean a person you are separated from.

If you employ your spouse in your business (unless your business is a company) you must get approval from Inland Revenue to pay wages. If you do not have approval you cannot claim a deduction for the wages in your business accounts.

We give approval if

Write to Inland Revenue giving the following details:

You should apply for approval before you start paying wages to your spouse. You need to make another application if you increase the wages as a result of

Students

Primary and secondary school students

If primary or secondary school students work for you, tax them as follows

Weekly earnings of less than $20

School children whose total earnings from all employment are less than $20 a week do not have to complete an IR 330 declaration. Do not deduct PAYE from their earnings. You do not have to include them on your employer monthly schedule, but you still have to keep wage records for them.

Weekly earnings of more than $20

Where earnings are more than $20 a week but the annual earnings are not expected to be more than $1,040, the child does not need to fill in an IR 330. Do not deduct PAYE or earner premium from earnings.

School children who earn more than $20 a week and who expect to earn more than $1,040 a year must fill in an IR 330. Deduct PAYE or withholding tax from the full payment. See page 5 to work out whether the child is an employee.

Children are entitled to a rebate of $156 each year if the income is over $1,040. If the income is less than $1,040, the rebate is 15 percent of the income. If a child has completed an IR 330 tax code declaration, reduce the PAYE to be deducted by $3 each week.

University

Deduct PAYE in the normal way. An IR 330 must be filled in. Some of these students may use an M SL, S SL or SH SL code. You must then make student loan deductions along with their PAYE.

Subsidised workers

If you employ someone who has been unemployed for a certain time, Work and Income NZ may subsidise that person's wages.

Deduct PAYE from the employee's wages using the PAYE tables. Tax deductions should be made from the gross wage, not the gross wage less the subsidy.

You must keep a record of the grants or subsidies received and how you have used them.

There are GST obligations regarding these grants. If you are registered for GST then the wages subsidy received will be GST-inclusive and the GST component will need to be returned in your GST return. You cannot claim GST on wages paid out.

Workers receiving a community wage

Under current benefit laws, people receiving the community wage may be asked to undertake community work with a sponsor. A sponsor is the organisation that provides the community work. As an employer, you may be a sponsor.

All community wage recipients still receive income support. However, those who do community work receive a participation allowance in addition to their income support.

The participation allowance is a flat rate of $21 per week. The sponsor is responsible for paying this allowance, and can then claim it back from Work and Income NZ every four weeks.

The sponsor is not an employer of any community work participants; rather it is acting as an agent on behalf of Work and Income NZ in paying the allowance to the participant. This means the allowance is not subject to GST or income tax in the hands of the sponsor. You are not required to make any deductions from this allowance.

Workers under labour-only contracts in the building industry

Payments made under labour-only contracts for the following activities in the building industry are liable for withholding tax

Other sections of the IRD Employers Guide

Contents  |  Responsibilities  |  Records  |  Other Payments  |  Penalties  |  Special Workers