Payroll donation is a voluntary scheme. For every dollar an employee donates they receive a third back as a tax credit in the same pay period by you. Donations are deducted from employee’s earnings by you and passed directly to the chosen donee organisation.
For the list of the approved donee organisations, please refer to the IRD website.
The same calculation applies to all tax codes. Tax credit for payroll donations are calculated as:
Total donation * 0.3333
Before making a donation, the employee must have met all their tax obligations and had any legally required payments deducted from their pay i.e. PAYE (tax and ACC earner levy), student loan, child support, KiwiSaver.
To set up Payroll Donation, go to the employee file and then to "Pay Run Inclusions". You will see this screen.
- Click on 'Add'.
- Select the "Payroll Donation" deduction category from the drop down list.
- Enter the deduction amount to be applied per pay run of "Fixed", "Percentage of Gross", or "Percentage of Net".
- Enter of percentage or dollar value amount for Payroll Donation deduction.
- Select the deduction to be "Paid bank account" and select the donee organisation's bank account. The donee's bank account must be set up first via the employee's Bank Account screen so that it can be selected. Make sure you enter $0.00 in the "Pay into Account" - this is because the deduction amount has already been configured via the pay run inclusion.
- Select preserved earnings (if required). More details on preserved earnings can be found here.
- Enter a value in the 'Payment Reference' field to populate the bank file. This value will then be displayed on the donee organisation's bank statement to identify the sender of the donation.
- Enter any notes if you want the employee to see them on their pay slip.
- Enter the date this inclusion is to commence.
- Choose when this inclusion should cease.
- Click on 'Save'.
Below is an example of a Payroll Donation deduction.
Once the employee's Payroll Donation deduction is saved, the details will display under the Deduction line. If you need to make any edits, click on the "Payroll Donations" text which will expand the details again, make the required edits and click on save.
An example of the employee's Payroll Donation deduction in a pay run. The payroll donation tax credit is adjusted into the employee's PAYE amount.
If you had selected deduction to cease "After the following amount has been reached", then when you finalise a pay run, you will notice in the employee's file, in the Pay Run Inclusions, the Payroll Donations deduction will display the total amount paid so far.
Once the Payroll Donation expiry date or specified amount has been reached then the Payroll Donation deduction will stop.
To delete the deduction, hover to the far right until the 'x' appears and then click on the 'x' icon.
A "Confirm delete" popup will appear. Click on 'OK' to continue with the deletion.