PAYROLL GIVING AN IMPLEMENTATION GUIDE FOR EMPLOYERS D E C E M B E R Payroll giving is the way New Zealanders can give through their pay

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1 PAYROLL GIVING AN IMPLEMENTATION GUIDE FOR EMPLOYERS D E C E M B E R E A R L Y A D O P T E R E N G A G E M E N T G R O U P Payroll giving is the way New Zealanders can give through their pay 1

2 Foreword Foreword Payroll giving works for all involved. For recipient donee organisations, payroll giving lowers the cost of fundraising and provides a steady revenue stream. For employees, the donations they make are deducted before they receive their pay. The process is seamless and what s more, they receive an immediate tax credit of 33% of the donation value. For employers, payroll giving supports recruitment and retention strategies, and demonstrates support for the things that matter to employees outside of the workplace. The legislation allowing for donating via payroll came into effect in January 2010 as part of a range of changes to tax legislation to provide greater tax incentives for giving. The Income Tax Act puts responsibility for decisions to introduce payroll giving in the hands of employers, and employees can only donate through payroll giving where an employer has chosen to offer the scheme. In the months that followed the introduction of payroll giving it became clear that many employers were hesitant to adopt the scheme. Employers perceived that there was significant risk, cost and hassle involved in implementing the scheme within their workplace and as a result, adoption of the scheme was slow. Over time it became obvious that in order for payroll giving to progress and become widely adopted, there must be a means of implementing payroll giving that is easy, low cost and low risk for employers. Thus the Early Adopter Engagement Group was formed, with the vision that payroll giving is working. Prior to this, many of the group s members had explored a range of possible solutions for payroll giving and therefore brought to the group a deep knowledge of the challenges employers were facing. I am pleased to say that this guide is the result of much hard work and determination in understanding how those challenges can be and have been overcome. It is now over two years since the legislation came into effect, and we have a number of early adopter organisations that have implemented payroll giving or are well on their way to doing so. We are confident that we now have a model that works and that is low-risk, low cost and easy for employers. Payroll giving is indeed working. This guide consolidates the group s learnings to date, with respect to the implementation and communication of payroll giving. We hope you will find it useful for communicating the benefits of payroll giving and understanding the implementation requirements specific to your workplace. The Group has completed Phase 2 and the organisations are keen to continue to share their learnings. We hope that you will join us. Diana Crossan Early Adopter Engagement Group Chairperson December

3 Background & introduction Background The payroll giving early adopter engagement group was formed as a result of work carried out by the Tindall Foundation and the Ministry of Social Development to support the introduction of payroll giving in New Zealand. This work was carried out in response to the enactment of tax legislation allowing for payroll giving donations. The ability to donate via payroll giving came into effect in January The early adopter engagement group is a group of organisations that have joined together as a result of their mutual interest in encouraging uptake of payroll giving in New Zealand. The group aims to work collectively to overcome barriers to adoption of payroll giving and make payroll giving easily accessible to organisations across New Zealand universally. The work carried out to date by the Early Adopter Engagement Group has been guided by the following group principles: 1. Individuals should be able to choose which donee organisation they give to; 2. Payroll giving should be voluntary and easy for employees; 3. Payroll giving should be voluntary, low-risk, low-cost and easy for employers; 4. Payroll giving should be low-cost for donee organisations; 5. Recipient organisations must have IRD donee status. Introduction to Payroll Giving Payroll giving is a voluntary initiative which allows employees to donate to Inland Revenue approved donee organisations (charitable organisations, schools) through their employer s payroll system. Employees that donate via the payroll giving scheme receive an immediate PAYE credit of 33% of the donation amount. Payroll giving was introduced by Government and came into effect in January The opportunity to donate through payroll giving is only available to employees where an employer has chosen to adopt the scheme. There is no legal requirement for employers to offer the payroll giving to their employees. The payroll giving scheme is only available to employers who file their EMS (IR348) and EDF (IR345) electronically using ir-file. Further information about filing electronically via ir-file is available from Inland Revenue. Where payroll giving is offered, the employer must: deduct the requested donation amount from the individual employee's salary or wage calculate the correct tax credits for payroll donations for each donation made record the tax credits for payroll donations for individual employees on the EMS keep records of all tax credits for payroll donations, donation amounts, donee organisations and payment dates pass the donations to the chosen donee organisations within the specified timeframe of the deduction being made from the employee's salary or wage advise the donee organisation the donation is a result of payroll giving. 3

4 Payroll Giving Process The employer is responsible for ensuring that the correct tax is paid and that donations are only transferred to organisations that have been approved by Inland Revenue as having donee status. An organisation needs to be approved by Inland Revenue as a donee organisation to be eligible to receive funds donated through payroll giving. Being on the Charities Register does not automatically qualify a group as a donee organisation because only Inland Revenue approves donee status. You can check if an organisation is an approved donee organisation by searching the donee organisation list on Inland Revenue s website. Payroll Giving Process 4

5 Benefits of Payroll Giving Benefits of Payroll Giving Payroll giving works for everyone involved, benefiting employers, employees and their communities. Payroll giving enables employers to demonstrate their support for their customers, the wider community and above all, their staff and the causes that matter to them. While there is no legal requirement for an employer to offer payroll giving, there are many benefits to doing so. Payroll giving represents a cost-effective revenue source for the charitable sector and helps to provide a steady income stream where employees contribute through regular donations. Payroll giving is a tax-effective method of donating, with employees receiving an immediate tax benefit of 33% of their total donation. Payroll giving enables employers to help their employees support causes that are important to them. Payroll giving can be used to support employers corporate community investment and recruitment and retention strategies. Payroll giving enables committed long-term giving by individual employees, while also being flexible enough to facilitate one-off donations as part of broader corporate community investment or fundraising initiatives. Payroll giving enables organisations to respond quickly to appeals in times of crisis. Payroll giving contributions were found to increase significantly in the weeks following the recent earthquakes in Canterbury. By offering payroll giving, employers demonstrate their commitment to supporting both their staff and their local communities through facilitated giving. 5

6 Initial Set-Up Process Implementation Initial Set-Up Process 1. Establish owner/internal champion 2. Work with IT and payroll personnel to talk through issues and concerns and secure buy-in. This may also include staff from human resources, IT, payroll, finance, communications and sponsorship/corporate social responsibility departments. 3. Establish implementation requirements taking into account the requirements for: a. Payroll system this may involve talking with your payroll provider to understand system capabilities and potential costs involved. b. Donor interface c. Integration with verification system TIP Check out the information about Implementation on pages Meet with IT and payroll personnel to talk through any issues and concerns 5. Establish implementation plan and get estimate of costs. This includes system costs such as infrastructure, IT and software design, and cost implications for other areas of existing business i.e. impact on existing sponsorship activities. 6. Obtain senior management sign-off TIP Talk about some of the benefits of payroll giving listed on page 5 7. Begin implementation 8. Internal communication and promotion of scheme to employees 9. Launch payroll giving scheme 10. Ongoing communication and promotion of scheme to employees TIP Check out the Communications Guide on pages

7 Key Features of a Payroll Giving Scheme Implementation Key Features of a Payroll Giving Scheme Ideally, a payroll giving programme would require little or no additional ongoing effort from an employer and would enable the following: Functionality Employees have the ability to donate to any donee organisation including schools, and are free to choose which donee organisation(s) they will support. Employees manage their own payroll donations and have the flexibility to select the donation value and time period (including one-off donations). Receipting and reporting processes are automated, satisfy Inland Revenue requirements and do not place additional burden on HR and payroll staff. Donee organisations can communicate the impact of payroll giving donations to employees, should they choose to receive such communications. Employers regularly communicate company-wide payroll giving achievements to employees. Impact Existing committed donations can be transitioned to payroll giving donations: research estimates that 33.4% of the population (10 years old and over) made committed donations during a 12 month period. (Source: OCVS, Giving Summary 2008) Participation is likely to be higher if payroll giving is not restricted to certain donee organisations: Australian Charities Fund research indicates that almost one third of non-donors surveyed did not participate in their organisation s workplace giving programme because their preferred charity or cause was not included. (Source: Australian Charities Fund, Cutting to the Heart of Workplace Giving) Restrictions placed on choice of donee organisations may result in conflict within the workplace. The payroll giving programme is employee-driven and enables employees to give in the same manner that they might give outside the workplace (but with the immediate benefit of a tax credit for their donation). Manual paper-based processes are avoided and HR/payroll staff are not responsible for establishing or modifying employees payroll giving donations. Employers are confident that compliance requirements are being met and that payroll giving is not creating (significant) additional administration for HR/payroll. Employees are informed of the effects of the payroll giving programme and their individual giving: research indicates that those who participate in payroll giving do so out of a desire to make a difference, and wish to hear real-life stories of what is being achieved with their donation. (Source: Australian Charities Fund, Cutting to the Heart of Workplace Giving) Payroll giving forms part of wider CCI and recruitment and retention strategies through external and internal promotion of the scheme. 7

8 Overview of System Components Implementation Overview of System Components The following four components of a comprehensive payroll giving system have been identified: 1. Verification system 2. Donor interface 3. Employer payroll system 4. Communications strategy By effectively integrating each of these components, an organisation can be confident that: Employees can give to the donee organisations of their choice without the employer incurring significant risk or cost as a result of having to carry out the verification and ongoing maintenance of donee data. Payroll giving is an employee-driven scheme and creates minimal additional administration for an employer s payroll personnel. Payroll giving is incorporated into company-wide CCI and CSR strategies. Component Key Function Recommendation 1. Verification system Verifies and maintains donee organisation data Provides verified data to other system components Ideally this will be facilitated through a national verification system that would enable employers to easily access verified donee organisation data including bank account details. See page 11 for a diagram of this proposed system. Interim solution: existing MSD verified donee data (approx. 750 donee orgs) to be made available to interested employers. 2. Donor interface Stores employee payroll giving selections (donation value, frequency and recipient donee organisation(s) Provides donor selections data to payroll system for processing of payroll giving funds Each employer will need to identify the donor interface requirements based on their existing payroll and IT systems and vision for the payroll giving scheme within their organisation. For example, how much information about the donee should the employee be able to access in the interface? What capabilities are required in terms of stopping and starting donations? See page 12 for information about payroll giving donor interfaces. 8

9 Overview of System Components Component Key Function Recommendation 3. Employer payroll system Receives employee payroll giving donation data from donor interface Processes payroll giving deductions through payroll system to payroll giving funds administrator Applies payroll giving tax credit to employee pay Each employer will need to scope the technical requirements around onboarding verified donee data and integrating a donor interface. These requirements are likely to be slightly different for each employer depending on their payroll provider and IT system. You may wish to talk to other clients of your payroll provider to see whether a collective system could be established. 4. Communications strategy Facilitates the establishment of relationships between employers/employees and donee organisations. Each organisation will need to examine the role of payroll giving within the organisation s corporate community investment strategy. Supports internal and external promotion of the organisation s payroll giving programme. 9

10 Verification System Components Verification The process of verification ensures that the employers can be confident they are passing on payroll giving donations to the right place. As well as confirming an organisation has IR donee status, the verification process checks that the donee organisation bank account details provided by an employee or the donee organisation itself are correct. The verification process may also be used to gather additional data about donee organisations such as the location of the organisation and contact details for the person responsible for receipting payroll giving donations. Verification can be carried out manually by contacting each donee organisation to request an official bank deposit slip. Employers would also need to check the IR Donee Organisation List to verify that each donee organisation is included in this list. If an organisation is not included in the IR Donee Organisations List then they are not eligible to receive donations through payroll giving. The manual verification form included in Appendix A may be useful for those employers that wish to carry out verification manually. The Early Adopter Engagement Group has worked to establish a national verification system that would provide up-to-date, verified donee organisation data to employers. It is expected that the verification system will be up and running by mid The diagram on the following page briefly outlines how this system would collect data and provide it to employers and/or payroll providers to facilitate the payroll giving process and reduce administration for employers. 10

11 Proposed Verification System Verification Proposed Verification System 11

12 Donor Interface System Components Donor Interfaces A donor interface enables employees to self-manage their payroll giving donations, subsequently reducing the need for payroll staff to take on additional administration in relation to the scheme. Suggested donor interface functionalities include: 1. Employees can stop/start donations 2. Employees can choose from a wide range of donee organisations 3. Employees can input and change donation values 4. Employees can give to multiple donee organisations 5. Employees can enable their contact details or an identifier to be passed on to the donee organisation The donor interface should integrate with an employer s existing payroll system and may source donee data from the proposed national verification system. Where employers already run a payroll system with a self-service interface, there may be few changes required to integrate payroll giving functionality into the existing system. 12

13 Donor Interface Donor Interface Low-Tech Solutions In organisations with very few staff, a donor interface may not be considered necessary. In this situation, a manual paper based or form may be used for employees to send their payroll giving selections to the payroll administrator, who will then input payroll giving selections into the payroll system manually. An example of the kind of form employers might use is included in Appendix B. Transitioning Implementing a low-tech solution is a good way to test payroll giving within your organisation. If the response from employees is positive, you may wish to transition to a more advanced system at a later date. Points for Consideration Does your existing payroll system currently enable payroll giving donations? Do you currently have an employee self-service portal? Can this portal enable employees to self-manage payroll giving donations? If no, what changes are required to enable employees to self-manage payroll giving donations? Are these changes scheduled to be made by your payroll provider? 13

14 Employer Payroll Systems System Components Employer Payroll Systems All payroll systems are different and will therefore have different requirements for enabling payroll giving. Payroll system requirements will also differ depending on the model of payroll giving you wish to implement. Below are some guidelines regarding the level of functionality that may be required for payroll giving to function smoothly within your existing payroll system. Low-Tech Solutions Scenario 1 Scenario 2 14

15 Employer Payroll Systems Full Solutions Scenario 3 Scenario 4 15

16 Employer Payroll Systems Employer Payroll Systems Existing Solutions There are currently working payroll giving solutions for the following payroll systems. Users of these payroll systems should contact the following organisations for general advice and technical information regarding the implementation of payroll giving. Payroll System Status Organisation Chris21 Solution available Ministry of Social Development SAP Solution available Telecom PS Enterprise Solution in progress Department of Internal Affairs Handling Reversals While unlikely, it is possible that you may need to reverse a payroll giving donation for any of the following situations: The payroll giving donation processed was for an incorrect amount An employee has received a tax credit they are not eligible for Payroll giving funds are transferred to an organisation that is not on the Inland Revenue approved donee organisation list. The following case study provides an example of how a reversal could be handled. Further information about employer responsibilities with respect to payroll giving reversals is available from Inland Revenue. Payroll Giving Donation Reversal at the Ministry of Social Development In its first year of operation MSD encountered only one case of inappropriate use. The MSD system requires staff to confirm that they are in fact making a donation for which a tax credit would be payable. No donation will be accepted unless the staff member has ticked this box. The instance of inappropriate use came about when a staff member identified an abnormally high donation going to an early childhood centre. The decision was made to approach the donor and the donee to confirm that the amount was in fact a donation and not a fee for child care services. When questioned, both parties agreed that the amount was in fact to cover services and not a donation. The decision was made to adjust the staff member's tax deduction to what it would have been had a donation not been made i.e. reversing the tax credit. This corrected the Ministry's responsibility as an employer to ensure that the right tax was being deducted. It was decided to leave the funds transferred to the early childhood care centre with the centre on the basis that they were to cover services that were being delivered in relation to a child of the staff member. 16

17 Communiations Guide Communications Guide See below for a list of key messages and suggested communications for employee and employer audiences. Payroll Giving Information for Staff Key messages You get your tax credit (33.3 per cent of your donation) back immediately. This saves the hassle of collecting receipts for a tax claim at the end of the tax year. Payroll giving is an easy, convenient and voluntary way to help your favourite charities you can give as you earn. Even the smallest amount given on a regular basis can make a difference. You can easily make one-off, lump sum payments too. Payroll giving is a low-cost means of fundraising for charities. It s very simple to set up - you can set and forget. It s easier to keep track of your donations. Using the key messages: A sample message from the chief executive to staff Helping you to give to others Thanks for caring! We d like to assist our staff members who give to charity by making it easy to give as you earn. [This organisation] has chosen to offer payroll giving. It s very simple for staff to set up and it s all done online. You can make a donation to the charity of your choice automatically every pay day. Even the smallest amount on a regular basis will make a difference. You can easily make lump sum payments too. Our payroll system will allow the donation to be passed to your charity electronically. And you get your tax credit (33.3 per cent of your donation) back immediately. This saves the hassle of collecting receipts for a tax claim at the end of the year. This makes giving easier for you, and for your chosen charity. You can donate to hundreds of charities schools and community organisations such as churches, cultural organisations and sports organisations. The system works for all of these organisations provided they are recognised by Inland Revenue as having donee status. You can check the list of recognised donee organisations on the IRD website at 17

18 Communiations Guide To begin with, our payroll giving system may not include all the charities, schools or community groups that are eligible for payroll giving. Please talk to our payroll team if the organisation you d like to donate to isn t included in our payroll giving system. When you make a donation through payroll giving, our payroll system calculates the right tax credits for donations so you can be sure the right amounts are being deducted and credited. It s also easier to keep track of your donations. If you would like to know more, you can check out the IRD website or call or payroll staff for more advice - they will be happy to hear from you. Your concern for others is appreciated - thanks for considering becoming a payroll giver. With kind regards Payroll Giving Information for Employers What is payroll giving? Payroll giving is a voluntary initiative that allows employees to donate to their favourite charitable organisation, sports club, play centre or school through their employer s payroll system. Payroll giving was introduced by the Government in January Employers adopting payroll giving are encouraged to consider the following principles: Payroll giving should be voluntary, low-risk, low-cost and easy for employers. Employees should be able to choose which organisation they give to. Payroll giving should be voluntary and easy for employees. The benefits of payroll giving Payroll giving works for everyone, benefitting employers, employees and their communities. Payroll giving enables employers to help their employees support causes that are important to them. The charitable sector benefits from employees making regular donations that provide a steady income stream and cost-effective revenue source. Employees who donate by payroll giving receive an immediate PAYE tax credit of 33.3 per cent of the donation amount. Payroll giving demonstrates employers support of the community their staff live, work and play in. Payroll giving can contribute to an employer s recruitment and retention strategies. Payroll giving enables committed, long-term giving as well as one-off donations. Payroll giving enables quick response in times of crisis. Contributions were found to increase significantly in the weeks following the Canterbury earthquakes. 18

19 Communiations Guide Payroll giving is only available to employees whose employer has chosen to adopt the scheme. Recipient organisations must have IRD donee status. It is only available to employers who file electronic PAYE returns. What s involved in setting it up? Once set up, the payroll giving programme will require little ongoing effort from an employer. Employers that have already adopted payroll giving have found it did not require as much work for their payroll teams as expected. There are essentially four components to a payroll giving system. Verification system: verifies and maintains the data of recipient charitable organisations and supplies verified data to other system components. Donor interface: stores employee payroll giving selections and provides this to the payroll system for processing funds. Employer payroll system: receives employee donation data from donor interface, processes deductions through the payroll system and funds administrator, and applies tax credits to the employee Communications strategy: encourages the establishment of relationships between the employer/employee and recipient charitable organisations and supports promotion of the scheme. For further information about the implementation process see pages Where do I get more information? Get advice from employers who have already implemented payroll giving. In particular, your payroll team may find it useful to talk to a payroll professional at an organisation where payroll giving has already been implemented. See page 16 for a list of organisations that have implemented payroll giving. A list of additional resources is also provided on page

20 Further Resources Further Resources Further information about payroll giving can be found at: Inland Revenue Payroll Giving Information Office for the Community & Voluntary Sector Payroll Giving Information Payroll Giving Information Read through the Payroll Giving Case Studies and Frequently Asked Questions. You can also download Payroll Giving Guides for your workplace. List of donee organisations that are eligible to receive donations through payroll giving The Giving Business Report (Report on payroll giving in Australia) Cutting to the Heart of Workplace Giving Report (Report on payroll giving in Australia) Acknowledgements The Early Adopter Engagement Group wishes to thank the following organisations for their support in 2011: The Tindall Foundation Inland Revenue Ministry of Social Development Westpac New Zealand Funding for the Group Chairperson and Secretariat roles in Phase 1, February July 2011 Funding for the Group Chairperson and Secretariat roles in Phase 2, August December 2011 Donation of verified donee data Donation of meeting rooms for group meetings in

21 Appendix A Manual Verification Form Appendix A Manual Verification Form Request for Verification of Payroll Giving Information To register your organisation for Payroll Giving with <enter company name> please complete all fields below and return to us at <insert /fax/postal address> Donee organisation details Legal name of donee organisation Charities Commission registration number Authorised officers Please provide name and signatures of authorised officers for organisation Signatory One Name Signature Signatory Two Name Signature Bank account details Bank Branch Account number Account Name Bank deposit slip attached (scan and , fax or post with completed form) IR number (for donee organisation) Tick to confirm We authorise <enter company name> to: Verify IR number with the Inland Revenue Verify bank account number with your bank Please tick If any of the above details change, you ll need to let us know in order to ensure that your organisation continues to receive donations through payroll giving. 21

22 Appendix B Manual Employee Request Form Appendix B Manual Employee Payroll Giving Request Form Employee Payroll Giving Request Date Employee Name Division/Role Employee # (if known) Please make the following deductions from my wages/salary under the payroll giving scheme: Donee Organisation Name Donee Organisation Bank Account Donee Organisation Contact Details Name Address Phone number Contact Donation value Donation frequency Start date End date Enter dollar amount i.e. weekly, fortnightly, monthly Enter date Enter end date or ongoing Signed 22