Payroll giving

Payroll giving enables donations to go directly from a person’s pay to a chosen community organisation. The scheme is administered through the PAYE tax system, so people whose employers introduce a payroll giving scheme will receive the tax benefits of their donations each payday, without having to present donation receipts or wait to claim at the end of a tax year.

From 7 January 2010, the first businesses were able to introduce payroll giving and the first employees and community organisations began to benefit.

Payroll giving is voluntary for employers and employees and is only be available for organisations that file their PAYE returns online. Various updates to different payroll management software packages and services are likely to make administration of a payroll giving scheme relatively straightforward for employers. If New Zealand follows overseas trends, uptake of payroll giving may take time but, as people recognise the benefits, its popularity will grow.

Research on giving indicates that approximately 794,000 people in employment are already committed givers (ie: making regular contributions of time or money to causes that are important to them).  By switching to payroll giving, many of these workers could potentially get money back that they might not have bothered to claim from the tax department in the past - effectively making donations more affordable, which may encourage some people to increase the amounts they give.

Resources promoting payroll giving and other related tax changes are now available. The OCVS will be working with a range of community organisations to spread the word and offer guidance about payroll giving.

To be eligible to receive donations through payroll giving, an organisation must have approved donee status from Inland Revenue. A list of approved donee organisations is shown on the Inland Revenue website. (In November 2009, more than 18,000 organisations had been given approved donee status.) A charity can also be a donee organisation, but not all donee organisations are charities.

It is up to each employer to decide how many donee organisations they include in the payroll giving scheme for their workplace. Employers may choose to limit the number of different organisations in the scheme, and how often employees can change who or how much they donate.

Employers and employees should talk about how they want the scheme to run in their workplace - remembering that it is totally voluntary for both employers and employees.

In 2010, staff from the Office for the Community and Voluntary Sector presented payroll giving workshops at a number of locations around New Zealand, with support from Inland Revenue, the Charities Commission and the Generosity Hub.  Attendees at these presentations received A3 information sheets explaining payroll giving, clarifying the tax incentives and providing ideas for charities to make the most of payroll giving.

Nineteen information sets have been created for specific audiences such as Māori, arts, sports groups, recreation organisations, churches, schools and employers, etc.  Check the list below and download and print the version most relevant to you.

The rules for the new payroll-giving scheme are largely contained in new sections LD 4 to LD 8 of the Income Tax Act 2007 and in new section 24Q of the Tax Administration Act 1994.

The key features of the scheme are:

• Participation in payroll giving is voluntary for employers and employees.
• Payroll giving is available only to employees whose employers file their employer monthly schedules and PAYE deduction forms electronically, using Inland Revenue’s ir-File service, and who choose to offer payroll giving in their workplace. (Note: Any employer can choose to file electronically.)
• Employers may choose to limit the number of different organisations in the scheme, and how often employees can change who or how much they donate. (However for some, their payroll software will make it easy to administer very flexible schemes with potential donations to a huge variety of donee organsisations.)
• For every dollar an employee donates, they receive one third back as a tax credit in the same pay period - effectively making giving more affordable.
• Payroll donations must be made to a donee organisation. A donee organisation is a society, institution, association, organisation, trust or fund as described in section LD 3(2) of the Income Tax Act 2007 or an organisation listed in schedule 32. (See below for a link to the list of donee organisations)

Payroll giving schemes will be initiated in workplaces by employers and employees deciding how they should operate, however donee organisations can take some actions to help ensure a smooth introduction.

• Make it easy for existing and potential donors to locate your organisation’s legal name and bank account details (eg: put them prominently on your website).
• Know how your organisation’s name appears on the donee organisations list on the Inland Revenue website (so you can tell people what to look for when checking the list)
• Follow Inland Revenue’s guidance on receipting for payroll giving (the receipt should be in the name of the employer’s business and MUST clearly state that the donation was made via payroll giving)
• Be aware that most payroll software systems are updated on 1 April each year, so many employers may choose to wait until this time to start offering payroll giving
• If your organisation employs staff, be one of the first to offer payroll giving options to your employees – it will help you get to grips with how it works and you’ll gain an appreciation of what is involved in setting it up
• Consider how you will keep payroll givers informed about your work as you will probably not know their names and contact details – perhaps you need a newsletter for people to sign up for, a Facebook page or something for workplaces?
• If existing donors switch over to payroll giving – offer them a way to stay informed about how their donations are used by your organisation
• Go along to a payroll giving information session when it comes to your region in April/May/June 2010. Apart from giving an overview on payroll giving, it will also be chance to learn about the different solutions on offer to make payroll giving easier for employers and non-profit organisations.
• Sign-up for the free OCVS e-newsletter now – to stay informed about tips, articles  and the payroll giving information sessions as they are rolled out in the New Year

An information pack was distributed to employers during November 2009.  Every employer received a letter and brochure explaining the basic changes. Employers with five or more staff also received a CD-Rom including the Payroll Giving Guide (IR617) from Inland Revenue and a selection of promotional posters.  (Electronic versions of the posters are supplied on the CD-Rom in A3 and A4 sizes and in colour and black and white)

The key contents of the CD-Rom are also available below for those who do not receive this through the mail.  See more on the Inland Revenue website.

The employer CD-Rom also includes information about other recent changes to support giving - including clarifying the rules about payments to volunteers, and tax relief for gifts of money to donee organisations.