Summary

In New Zealand, if an employee is in arrears for payments such as tax, student loans or family tax credit overpayments, then the Inland Revenue Department sends the employer a Section 157 notice. The notice tells the employer to deduct the appropriate payments from the employee's wages and explains how to calculate the required amounts. Child support payments are deducted before tax and student loan arrears, and family tax credit overpayments. The employer needs to send the payments to the IRD by the end of each calendar month, separately from PAYE payments.

Process

If you receive a Section 157 notice, you need to set up an arrears payment deduction with:

• Calculation method = "A. Arrears payment"
• Type = "D. Standard deduction"
• Taxable = "No"
• Reducing balance = "Yes"

You would then create an Employee Loans record that uses the arrears deduction.

Calculation

The "A. Arrears payment" calculation method performs the following steps to derive the deduction rate amount:

1. Get employee's gross pay.
2. Calculate the period adjustment factor:

   Number of periods to tax * Weeks on period (such as 4.3333 for monthly employees)

3. Calculate the threshold for the employee's pay:

   $100 * Period adjustment factor (Step 2)

4. Calculate repayment rate:

   Employee loan default repayment rate * Number of periods to tax

5. If the Gross pay (Step 1) is less than the adjusted threshold (Step 3):

   Deduction rate amount = $10 * Period adjustment factor (Step 2).

   If the gross pay (Step 1) is greater than or equal to the adjusted threshold (Step 3), continue to Step 6.

6. If the repayment rate (Step 4) is less than 20% of the gross pay (Step 1):

   Deduction rate amount = Repayment rate (Step 4)

   If the repayment rate (Step 4) is greater than or equal to 20% of the gross pay (Step 1):

   Deduction rate amount = 20% of gross pay (Step 1)