The Definitive Guide to Payroll Giving

Kiwis are a charitable bunch. The latest figures (from 2014) show that each year we give around $1.5 billion dollars in personal donations to charities and charitable organisations.

We often donate to charity on an ad-hoc basis, whether it’s in response to a major event or by charities fundraising on the street, over the phone or at your doorstep. However, some Kiwi’s prefer a more structured approach and set up regular payments to their favoured charities.

Regardless, with over 30,000 registered charities in NZ, the hardest part is often choosing which great cause to donate to!

So what can you do?

It’s a little known fact that individual charitable donations are eligible for tax credits. Individuals can claim a 33.33% tax credit for all donations over $5 to an IRD approved donee. So what might this look like? Well, if you donate $100 to a registered charity, you can claim back $33.33 in tax, essentially meaning the taxman covers the remaining $33.33 to your chosen charity!

Typically it’s a bit of a process to claim your tax credit – you have to complete an IR526 (a Tax Credit Claim Form) and send it to IRD with your donation receipt(s) and then wait for them to process the credit.

Introducing a better way: Payroll Giving!

What is Payroll Giving?

Payroll Giving is a scheme where employers can allow their staff to donate to charities directly through their payroll system. It’s a seamless way for employees to give back to their chosen charity while automatically redeeming their tax credit in the process. It’s also a great, low-cost way for charities who often have stretched resources to gradually fundraise.

The money is donated directly from an employee’s pay and they receive an immediate tax credit (33.33% of the donation amount) that reduces the amount of PAYE deducted from their pay.

The example below gives you an idea of what a payslip could look like with a donation of $40 being deducted, and $13.33 in tax credit being added. For this example, the below employee’s tax code is M.

How to set up payroll giving as an employer

As an employer, you do have a few key responsibilities when you offer payroll giving:

• Deduct the chosen donation amount from the employee’s earnings

• Work out the appropriate tax credit for the donation (which is 33.3333% of the donation)

• Record this tax credit on your payday filing employment information schedule

• Send the donation to the employee’s organisation of choice within a specified timeframe

• Advise chosen organisation that the donation is from payroll giving, and

• Keep records of all the donation amounts, tax credit for each donation, payment dates and the chosen donee organisations

Your employees’ responsibilities when joining payroll giving

If your employees want to join your payroll giving scheme, they need to:

• Check the donee organisation they want to donate to is an approved donee organisation, and

• Give you the:

  • name of the donee organisation

  • donation amount they want to make

  • pay period(s) they want the donation to be made, and

  • donee organisation’s bank account details or postal address.

• If your scheme allows, the frequency, amount and donee organisation chosen can change at the employee’s discretion.

Bonus use case – Claim a tax credit on your school donations

It’s helpful to know that employees can claim a tax rebate on school donations through payroll giving as well. To qualify for this benefit you have to:

• Have earned taxable income

• Resided in NZ at any time of the recording tax year

• Be an individual (not a partnership or company for tax purposes)

• Have paid donations to a state or state-integrated school or kindergartens registered as a charity

Why your company should offer payroll giving

So is your company thinking of getting on board? Good call! A few reasons why we think offering payroll giving is a fantastic initiative:

• It simplifies the process of donating to charities and claiming the tax credit

• It shows good corporate citizenship, which is important for the long-term well-being of your company and your employer brand

• Employees want it! It’s always a good thing to offer initiatives that lead to loyal and supportive staff and lower turnover

• It’s a low-cost, easily administered way of encouraging charitability within the community.

Studies have found that 72% of employees feel a stronger sense of loyalty to their company when they’re actively giving back to the community through supporting a charity. About half of all NZ companies contribute financially to community organisations and charities in some form – it’s simply becoming the Kiwi way.

If you’re an employer looking to offer payroll giving or an employee hoping to start using payroll giving, the IRD website has some helpful resources.

And if you’re a PayHero or FlexiTime customer it’s super easy to set up!

Payroll Giving in PayHero Payroll Giving in FlexiTime

In the meantime, happy giving!