Modern HR practice considers people managers to be at the forefront of the employee experience, with employee engagement stemming directly from an employee’s relationship with their manager. It is often said that people don’t leave companies, they leave managers. Hence, the ability for organisations to foster an employee experience leading to loyalty, retention, and business success hinges on the relationship and connection between management and their employees.

Employee engagement is vital in any organisation to preserve the right talent needed to acquire, serve and retain business. However, there is a common misconception that this engagement is determined by financial remuneration and perks alone. Recent trends, supported by research conducted by Gallup, have shown a fault with this model, demonstrated when employees receive employment offers from elsewhere. Commonly, if they believe the other employer will value them more on a personal level, they will leave, even if it is for less financial reward. This suggests that employers are not focussing on areas that employees truly value. It is evident that employee engagement is no longer created by perks, rather is it created through a culture driven by trust and approachable and personable leaders.

Traditional hierarchical management structures can create blockages to engagement, whereby a lack of personal and approachable leaders breeds a fear-based culture. This can make employees feel as though they are treated as a skill set, rather than a person. Similarly, if employees do not feel connected to the outcomes of their work and the strategy of the organisation, they are unlikely to be engaged. This is where it is important that managers help employees to make the connection between their work and the organisation’s mission.

In a time where many of our work functions are becoming increasingly automated, managers are thought to have more time than ever to interact with their employees. The key is to use this time for more meaningful interactions. The transition from traditional management styles, to one focused on stronger relationships and people development, may pose a challenge for managers unequipped to deal with changing expectations. However, it is vital that management adapt to avoid negative effects on employee engagement.

As our workplaces offer increasingly flexible work options, the opportunity to maintain face-to-face communication is also threatened. This will challenge organisations to consider how their workspaces and work practices can be better designed to facilitate interpersonal relationships between managers and employees. However, in order for managers to fulfil these new expectations it is critical that managers are equipped with the skills necessary to be good relationship builders and behavioural leaders. Historically, management development has focused on “hard” skills. Yet, with ongoing advancements in technology and automation, organisations should renew their focus to developmental opportunities for managers.

Organisations that are committed to building deeper personal connections amongst employees are likely to see the benefits of increased commitment, job satisfaction, and productivity.

The way employers report payroll information to Inland Revenue (IRD) is changing. From 1 April 2018, IRD introduced a new electronic reporting system, providing employers the option of filing payroll information every payday. From 1 April 2019, the new system will be compulsory for most employers, so it is imperative business owners get to grips with the new rules to avoid the risk of non-compliance.

Under the new payday filing system, the information must be reported every time employees are paid, which could be complex for businesses with a combination of employees paid weekly, fortnightly and monthly.

From 1 April 2019, the new system will be mandatory for any NZ employer who withholds more than $50,000 of PAYE and Employer Superannuation Contribution Tax (ESCT, e.g. Kiwisaver) per year. Paper filing will remain available for smaller entities who do not exceed this threshold, although they may also opt in.

The details submitted to IRD will remain substantially the same, with additional information required in respect of ESCT payments, the pay cycle frequency, pay period start and end dates, and the payday date. There will also be amendments to the way information is collected for new employees, allowing electronic onboarding for new starters.

IRD’s electronic system supports three ways of collecting the employment information. The most straightforward option is direct filing from compatible payroll software, bypassing the need for files to be uploaded through the ‘myIR’ system. Alternatively, information can be submitted electronically or manually through the employers online ‘myIR’ account.

Generally, payday filing will require employment information to be submitted within two working days of each payday. For a business with a combination of employees paid both monthly and fortnightly, the filing deadline will be within two working days of both the monthly and fortnightly payday. However, for IR56 taxpayers, or employers below the $50,000 threshold, the deadline will be extended to within 10 working days of each pay date, with an option to submit a single monthly report.

Despite the increased reporting frequency required by payday filing, PAYE payment dates and methods of payment will remain the same. This means employers will continue to pay PAYE monthly or twice monthly, as they currently do.

Although the increased reporting frequency may appear burdensome at first glance, there is an opportunity for payday filing to reform payroll processes, becoming an integral part of the general accounting system rather than an additional monthly task. This integration will work best for software systems that can upload directly to IRD. Some employers may need to upgrade their existing payroll systems and procedures to ensure compliance by the mandatory deadline, hence, it is important that employers start considering the impact the changes will have now.

The Labour-led Government recently released the Research and Development (R&D) Tax Incentive Discussion Document, which proposes a 12.5% R&D tax credit on eligible expenditure from 1 April 2019.

The Government believes R&D is key to building a better New Zealand through creating a diverse, sustainable and productive economy. R&D expenditure by businesses in New Zealand is currently 0.64% of GPD – compared with the OECD average of 1.65%. The Government aims to increase this to 2% of GDP over the next 10 years.

The proposed tax credit will apply to eligible R&D expenditure between $100,000 and $120 million, equating to a possible $15 million tax credit. All businesses, regardless of legal structure, will be eligible for the credit. So the key determinant for accessing the grant will be the definition of ‘eligible’ expenditure. Two approaches are being considered. The first based on the cost of labour directly incurred on R&D, and a second broader approach intended to capture both direct and indirect R&D costs.

The proposed definition of R&D necessitates the use of “scientific methods” and requires the resolving of “scientific or technological uncertainty”. Although the regime is intended to have a broad reach, the draft definition maybe narrow and could limit the scope of eligible R&D activities. For example, it may not encompass software/app development if it doesn’t involve traditional scientific methods, nor solve uncertainty (i.e. they are more targeted at a specific creation or result) or address a material problem.

There are also some taxpayers benefiting from the existing R&D tax credit regime that will lose out from the proposed change. Under the current regime, loss-making companies can cash-out a portion of their tax losses, providing valuable cash flow to start-up companies incurring losses in the early years of business. However, under the proposed new regime, the tax credit will not initially be refundable and the value of the tax credit will not crystallise until a business is in a tax paying position.

Furthermore, the Callaghan Innovation Growth Grants will be phased out over the next two years, with all grants ceasing on 31 March 2020. This is on the basis that the new tax incentive is funding “a similar type of activity and have a similar purpose”.

The combination of the above could have a detrimental impact on the cash flow of R&D start-ups who may not have access to bank funding or may not want to dilute equity through additional capital investment. However, the Government has indicated that it will introduce changes to support R&D businesses in tax loss positions from April 2020, so we will need to wait and see what these changes bring.

The MBIE Labour Inspectorate have recently announced that they are going to prioritise employer compliance with the Holiday Pay Act. They expect businesses to calculate leave and holiday pay entitlements accurately. However, a growing number of non-compliance cases suggest that this is easier said than done, with both small and large businesses finding the rules complex to tackle.

Over the past six years, MBIE has investigated 156 employers to measure their compliance with holiday pay rules, and every single employer was found to have some degree of non-compliance. In addition to financial loss, employers making mistakes also risk reputational damage and loss of employee trust.

There are many reasons behind the difficulties faced by employers in this area.

The Holiday Pay Act requires different rates to be used for the various types of payments made to employees. For example, a weekly rate must be applied to annual leave payments, however a daily rate should be applied to other employee entitlements such as sick leave and public holidays. There are also complex rules and methodologies that should be applied in special circumstances, for example when employment ends. The legislation often requires employers to compare two alternative calculation methods, so it is important that these are correctly understood.

Errors often occur in holiday pay calculations when payments other than salaries and wages need to be included. The average weekly and daily rates need to be calculated accurately; in addition to gross earnings the rates also needs to include allowances, overtime and incentives. If these are excluded, there is the risk entitlements are underpaid. However, employers also risk overpaying employees by unnecessarily including other amounts, such as bonuses, in the calculation.

Variability of pay also introduces complexity. For salaried workers, the calculation process is often more straightforward as their ordinary and average pay is likely to be the same. However, for waged employees working variable hours, the average pay may vary over different periods of time. It is therefore crucial for employers to understand their full workforce and apply the rules accordingly.

As payroll functions become increasingly automated, many employers rely on payroll systems to perform holiday pay calculations. Here the flexibility and sophistication of the system becomes important. If the system is able to process multiple types of calculations and comparisons then errors are less likely to occur. However, less sophisticated systems risk calculating underpayments for employees working irregular hours. Most systems are unable to tackle all the various scenarios described under the legislation, running the risk of non-compliance.

To avoid non-compliance and resulting action by employees or regulators, it is vital that employers understand the provisions of the Holiday Pay Act and apply them correctly. Employees can legally request remediation for non-compliant payments up to six years after the payment, and in cases of serious non-compliance, employers may be taken to the Employment Relations Authority.  The potential scale of non-compliance varies from organisation to organisation, depending on the mix of employees and the total wage bill, so it is vital that all employers consider their individual circumstances and take advice as appropriate to ensure compliance with the legislation.

The Taxation (Annual Rates for 2018-19, Modernising Tax Administration, and Remedial Matters) Bill was introduced into Parliament in June 2018. The Bill seeks to improve tax administration and modernise the revenue system by making tax “simpler and easier” for individuals. However, the majority of the proposed improvements are heavily reliant on the success of the Inland Revenue’s shift toward increased automation.

The key proposals seek to help individuals pay and receive the right amount of tax during the year, for example by:

• enabling IRD to help individuals determine their appropriate tax rate or code;
• using tailored tax codes;
• automating tax refunds; and
• streamlining the administration of donation tax credits.

The proposals aim to minimise the need for tax adjustments at the end of each year. Current year-end processes, such as personal tax summaries and IR3 forms, will be replaced with pre-populated accounts based on information that is provided directly to IRD. Consequently, individuals who only earn “reportable income”, such as employment income and bank interest, should have the right amount of tax deducted throughout the year via a tailored tax code. This will be verified by an automatic tax calculation at year-end, with any refund automatically paid directly to a nominated bank account.

Taxpayers with additional income, such as self-employment or rental income, or those that want to claim deductions, will still need to disclose this to IRD via the existing IR3 process. The proposed changes are expected to come into force on 1 April 2019, and will be adopted for the 31 March 2019 year-end process.

For charitable donation rebates, the planned changes will allow donation receipts to be submitted electronically throughout the year. The current IR526 year-end return will remain in place for those preferring this method. The option to electronically submit receipts will offer individuals greater flexibility and reduces the risk of receipts being lost or forgotten.

In addition to streamlining year-end filing processes, the Bill also aims to make it more straightforward for taxpayers to correct errors in their prior year tax assessments. If a taxpayer discovers that they made a mistake in a previous tax return, they will simply be able to include the amendment in the current year tax return if the amount of the error is equal to, or less than, both $10,000 and two percent of either the taxpayer’s taxable income or GST output tax liability. This will be more practical than the current system where taxpayers are often required to make a separate voluntary disclosure.

A further welcome change is in respect of IRDs process governing private binding rulings. The binding ruling process allows taxpayers to seek confirmation from IRD of the stated tax consequences of specified commercial arrangements. However, the current process is costly and typically only used by large taxpayers. The Bill seeks to simplify the application process, and also reduce IRD’s fees for providing a ruling, with the hope that smaller entities and those with lower value transactions will be encouraged to use the system.

The changes being introduced by the Bill will result in fundamental changes to the way individuals are taxed.