We're very confident that FlexiTime's tax calculation is extremely accurate. However there can be situations where the tax calculation result is different to your expectations.
If you notice that the tax deducted from an employee's pay is higher than usual, the most common reason is that the employee has already been paid for this period. You can investigate this by checking the Start and End Dates of this pay and compare it to the employee's earlier pays. If the employee has already been paid for this period, then FlexiTime will add the earnings from both of those pays together to calculate the tax. The tax that has already been deducted in the earlier pay is subtracted from the result, and this pay will be taxed the remaining amount.
If you can't correct this by reversing pays out and re-entering with the correct dates, then change the pay frequency of the second pay to be Variable. Only pays with the same frequency are stacked together for the tax calculations.
Comparison to Other Calculations
If you are comparing the results that you get with FlexiTime to another system, e.g. the IRD PAYE Calculator or another payroll system, and you see some differences there are a few simple things that you can check.
Are you comparing apples with apples?
The main three factors that determine how PAYE is calculated are:
- the gross earnings
- the tax code
- the pay period
The first step is checking that these are the same in both systems. You can usually work out the cause of any differences in PAYE by comparing the information entered. The most common reason for tax calculation variations that we see in support requests is differences in pay period - comparing the tax on the same earnings but for different pay frequencies, e.g. weekly vs fortnightly.
There may also be additional one-off elements in a pay which affect the PAYE calculation, particularly bonus payments, extra pays or final pays.
Extra pays, (including back pays), some Bonus payments, and final pays require the employee's pay history to calculate the tax. IRD's PAYE calculator does not have this information available, so usually can't be relied upon to correctly calculate the PAYE in these cases.
You also need to make sure that you've selected the correct tax year when you're using the PAYE Calculator to ensure that the correct tax and ACC rates are used.
Rounding and accuracy - a common question for Withholding Tax.
NZ tax calculations are done on truncated whole dollars of gross earnings. A common question we have around employee on a flat withholding tax percentage is why the tax isn't the exact percentage of the total earnings. The answer is that the cents need to be taken off before the percentage is applied. So 20% withholding tax on $100.90 is $20, not $20.18.
FlexiTime will calculate tax accurately down to the nearest cent, to match the IRD. Note that when comparing FlexiTime's calculations with manual calculations using the IRD's paper tax tables, you may find a difference due to the improved accuracy in our calculation.
If you think there should be a student loan deduction, but none is showing in FlexiTime, first check that the employee has a student loan tax code - one ending in SL. If so, but the student loan repayment in the pay is set to zero, then the most common reason is that they have not reached the minimum earnings threshold. This is currently $374 per week. Any earnings less than that do not have student loan repayments deducted. The IRD website has more information on student loan thresholds.
If you would like FlexiTime Support to investigate this for you, please include the following information in your support request:
- Your FlexiTime Company Code
- The employee name
- Pay Date
- The gross earnings of the pay
- Tax Code
- Tax Period
- Pay Frequency (e.g. weekly, monthly, variably)
- The Start and End Dates of this pay
- Has the employee already been paid for this date range?
- Details of any bonus amounts included in the pay.
- Is this an extra pay or a final pay?
- The employee's gross earnings over the previous four weeks
- Details of what you entered and the results you got from the other payroll system or IRD calculator. Please include screen shots if possible.