Summary

The New Zealand government introduced the Student Loan Scheme in 1992. Under the scheme, Inland Revenue is responsible for collecting student loan repayments from the year after the money is borrowed, and administering interest write-offs.

Repayment types

Standard repayments are made at the legislated rate of 12% of the employee's earnings. If the employee's tax code is M SL, ME SL or STC SLM, then the student loan repayment threshold is applied so the employee's earnings up to the threshold (annual) is excluded from the repayment calculation. The threshold is not applied to other student loan tax codes so the repayment is calculated on the employee's whole earnings.

Catch-up repayments are initiated by the student loan commissioner, and the employee must make these repayments in addition to their standard 12% repayment. The additional payment will not be more than 5% of the employee’s gross taxable income that is subject to Standard student loan repayment calculation . Theses types of payments are also referred to as SLCIR.

Voluntary repayments are initiated by the employee because they want to make these repayments in addition to their standard 12% repayment. Also referred to as SLBOR

Note: From 01/04/2013, if the employee makes voluntary repayments of $500 or more in a tax year, they no longer receive a 10% bonus based on their voluntary repayment amount.

These repayment types are reported separately on the EMS (Employer Monthly Schedule) report.

Deductions

You need to set up Deduction records for each type of student loan repayment.

Standard

Most databases must contain a standard student loan deduction to generate the mandatory 12% repayment. The first student loan deduction in your database must have Deduction class = "S. Student loan reduction" and Sub-class = "Standard". Pay processing uses the student loan deduction with the lowest Code value to make the standard 12% repayments. For example, if the database contained student loan deductions with Code = 708, 709 and 710, then processing would use 708.

Note: Your database should contain only one standard student loan deduction.

Set up the Deductions | Details (iii) tab with the following values:

• Calculation method = "L. Student loan"
  Student loan repayment threshold is hard-coded in this calculation method. For employees on a main tax code, processing excludes the employee's earnings up to the threshold and calculates the 12% student loan repayment on the earnings over the threshold. For employees on a secondary tax code, processing ignores the threshold.
• Deduction class = "S. Student loan reduction"
  Used by reporting.
• Sub-class ="Standard"
  Standard 12% repayment.

Catch-up (SLCIR)

Employers receive section 157 notices for employees deemed by IR to be in arrears of their repayment obligations.

The section 157 notice defines the amount in arrears, the required repayment amount per pay and start date of the repayment.

These commissioner-instigated repayments are additional to their standard 12% repayment.

The maximum amount for the additional repayment is 5% of the employee’s income that is subject to the standard student loan repayment calculations. However, the wording will be more like like "repayment amount is 41.67% of the employees’ student loan standard deduction".

Set up the Deductions | Details (i) tab with the following values:

• Reducing balance = "Yes"
  The catch-up deduction is a reducing balance loan.
  Note: This also means you need to set up a new Employee Loan record for the employee(s) whom the employer received the section 157 notice for

Set up the Deductions | Details (iii) tab with the following values:

• Calculation method = "L. Student loan"
• Deduction class = "S. Student loan reduction"
• Sub-class ="Catch-up (SLCIR)"

Set up the Employee Loan with the following values:

• Loan Details tab

• Principal = Total amount the employee is in arrears
• Loan Reason = Select a reason code that indicates it for an SL catch-up, e.g. Section 157 - SLCIR

  Advanced date can be left todays date. Do not populate the Interest % or Interest deduction code fields.

• Repayment Details

• Repayment being date = date specified on the section 157 notice
• Repayment amount = An amount between 0 and 5. For example if the notice says 41.67% of the employees’ student loan standard deduction; then convert the value to a decimal number, i.e. 0.4167 and multiply by 12, which equals 5.0004, therefore enter 5.00

• Bank Details - add the IR's banking information

Voluntary - Percentage and Fixed

If any employees want to make additional repayments, then you need to set up voluntary deductions with Sub-class = "Voluntary (SLBOR)" for percentage and fixed amounts. Fixed amount voluntary deductions are much more commonly used than percentage voluntary deductions.

For voluntary fixed repayments, set up the Deductions | Details (iii) tab with the following values:

• Calculation method = "F. Fixed amount"
• Deduction class = "S. Student loan reduction"
• Sub-class ="Voluntary (SLBOR)"

For voluntary percentage repayments, set up the Deductions | Details (iii) tab with the following values:

• Calculation method = "L. Student loan" or "P. Percentage of gross"
  If you want the deduction to respect the student loan threshold, use "L. Student loan". If you want the deduction to use the employee's total gross, use "P. Percentage of gross".
• Deduction class = "S. Student loan reduction"
• Sub-class ="Voluntary (SLBOR)"

Special Repayment Rate

Special repayment rates only apply to an employee's secondary income for a maximum of 3 months at a time.

A special repayment rate deduction allows you to to override the employee's standard repayment amount.

1. Model the standard deduction to create a special rate deduction with a unique Code and Description.

   Note: Ensure that the Code value (such as 712) is greater than the Code for the standard deduction (such as 708) because pay processing uses the student loan deduction with the lowest Code value to make the standard 12% repayments.

Ensure that the Deductions | Details (iii) tab contains the following values:

• Calculation method = "L. Student loan"

  Special rate deductions behave the same way as standard deductions:

  • For employees on a main tax code, processing excludes the employee's earnings up to the threshold and calculates the repayment on the earnings over the threshold.
  • For employees on a secondary tax code, processing ignores the threshold.
• Deduction class = "S. Student loan reduction"
• Sub-class ="Standard"

Student Loan Transactions - Percentage Field

The student loan process requires the ability to override student loan rates and percentages at transactional level. Furthermore, for student loan catch-up repayments, IRD provide a principal amount that an employee has to repay at a set percentage rate. Pay processing has to reduce the principal amount each pay correctly until it is zero and then cease repayments.

If a deduction has Calculation method = "L. Student loan", then the transaction form contains a Percentage field and the Rate field is disabled.