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What is the best payroll system for small businesses in New Zealand?

We have had a number of clients call us lately asking if they should be looking at using Xero Payroll so I thought it about time that I summarised what I have been telling them in one relatively concise post. If you want more detail contact us.

With sick pay, holiday pay, termination pay, PAYE, student loans, and Kiwisaver deductions payroll can be a very complicated thing and if you get it wrong and miss a payment to IRD you are looking at a $250 late payment penalty plus the hassle of fixing up the mess. So using the right payroll system can save you a lot of time and gnashing of teeth.

Broadly the choices are:

  1. Do it all manually using the IRD calculators
  2. Use a DIY payroll system that does the calculations for you and tells you how much to pay your staff and IRD – Xero payroll falls into this category
  3. Use a full service payroll provider that does it all for you
  4. Thankyou payroll

Manual payroll 

You use the IRD calculators to figure out how much you pay your staff and what you need to pay IRD for PAYE etc; You pay your staff and on the 20th of the next month you pay IRD the PAYE, and file with them two forms, the IR345 employer deductions form and IR348 employer monthly schedule. If you have a login to IRD’s myIR you can file these electronically.

DIY payroll

There are a number of desktop and online systems here of which Xero is one. The systems provide a workflow that helps you manage paying staff and a calculator that works out how much you pay your staff and IRD, and what you to put in the IR345 and IR348 forms. Some of these payroll systems (e.g. Xero) also provide export files that you can upload to myIR for the IR 345 and IR348 forms, and batch files you can upload to the bank to pay your staff and IRD.

Xero Payroll is a good online full feature DIY payroll and getting better all the time. Another good option is Flexitime, with Flexitime you do get the option of allowing them to manage your PAYE filing and payments if you want.

Full service payroll

Now things start to get easy. When you sign up with a full service payroll provider you give them direct debit authority to your bank account. You fill in or check the time sheets for the employees and authorise the pay and the payroll provider does the rest. They direct debit the full amount of the pay from you on the due date and pay the staff. On the 20th of the next month they pay IRD (having already taken the PAYE $ from your account when the pay went out) and file the IR345 and IR348 forms for you at IRD.

We use and recommend online providers Smartpayroll and iPayroll.

Thankyou payroll

Thankyou Payroll gets a category of its own as it is just a little bit different.  It is very like a full service payroll except rather than direct debiting the full pay amount from your bank account you make the payment to Thankyou payroll each pay period. They still do the form filling and paying IRD. Updated: There is also a direct debit option, see Hugh’s comment below.

So which payroll is right for you and what will it cost?

The short answer is an online full service payroll or Thankyou Payroll are the best, and the best value, and these are the ones you should look at.

Manual payroll costs nothing but your time (and any penalty payments if you get it wrong). If you pay one or two people on salary and you do it via AP (same amounts each month) and you have a good 20ths of the month process and you always file things on time with IRD and you love doing paperwork then this is the payroll system for you.

Xero payroll is interesting but it still needs you to do the uploading and paying.  You can add payroll to starter, standard or premium plans for $10 for the first user per month, and $1 per month per extra user (all plus GST). At the time of writing this Xero don’t have a dedicated payroll helpdesk, if you need help it is via email to their normal helpdesk.

Who should use Xero payroll? If you have Xero already, and really want to hang onto your PAYE $ until the last possible minute, and you are disciplined about filing and paying IRD on time then Xero payroll is a good option.

If you are considering Xero payroll also look at Flexitime. There is a comparable basic $10 per month plus $1 per employee per month (up to 10 employees) plan with email support, or $20/$2 with telephone and email support and more features.

Full service payrolls are definitely the easiest and least risk. They do it for all you, no risk of missing payments to IRD. For Smartpayroll and iPayroll it will cost you around $25 – $35 a month for up to 10 employees. They also have very good email and telephone support help desks – invaluable if you have to work out termination pays or anything out of the ordinary. They also integrate with Xero.

Who should use a full service payroll? Anyone who has to pay staff should. They easily pay for themselves in the time they save you, even at minimum wages.

But there is more – Thankyou payroll is very close to being a full service payroll and it is free. The catch is that you have to transfer/DD the full pay to them three days before it gets paid, so they hang onto your money for a bit longer. If you are a charity, or donate regularly to one, or pay a small fee, then you can get next day payroll processing. Thankyou payroll also have a helpdesk.

Who should use Thankyou payroll? If you pay staff it is worth a look – the price is right and we have had good feedback from clients of our using it.

thankyou

9 thoughts on “What is the best payroll system for small businesses in New Zealand?

  1. Great news. The other reason some of our clients have used Thankyou Payroll is be able to use an AP to avoid the need for a letter of credit from the bank. Do you require one for your direct debit option?

    1. We don’t require one.

      Only drawback to this is that currently we can’t allow the direct debit option for overnight pays – so you have to confirm the debit a day in advance (for ex: confirm Monday night before 8pm and we pay employees Tuesday night). This prevents us from requiring a letter of credit as the money is in our account before we pay. Next year when the settlement before transfer project goes live for BNZ we should be able to allow overnight pays for direct debiting as all transfers will be guaranteed and processed same day.

      Thanks so much for the write up!

  2. Hi Martin – FlexiTime now also has a Small Business plan that costs $10 a month + $1 per employee for companies with up to 10 employees using our PAYE filing service.

  3. Xero Payroll – Please in detail how they charge. I have about 40 casual staff. Hours & numbers vary every fortnight. All 40 don’t work every fortnight. Sometimes one is off for a month & then works a few hours next month & so on. Very irregular.

    What is the cost?

  4. Does that mean every employee has to be paid
    $2.00 if they are paid twice a month?
    $4.00 a month if they are paid 4 times a month?
    $1.00 per month if they are paid once a month?
    Please clarify. Thank you.

    1. That’s $1 per month not per pay. Check out the Xero help or email support@xero.com with all your Xero payroll and pricing questions. Although we are big fans of Xero in NZ we don’t recommend Xero payroll as it is not a full service payroll and it doesn’t have telephone support. It’s all in the post…

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