Xero Payroll Help: Review and Update Sick Leave Entitlements prior to 24 July 2021

Xero Payroll

What you need to know

  • From 24 July 2021 all eligible employees’ minimum annual sick leave entitlement of five days increases to 10 days.
  • An existing employee becomes entitled to 10 days sick leave on their next entitlement date, based on their anniversary date.
  • New employees receive 10 days entitlement as soon as they become entitled to sick leave – usually after six months.

Visit MBIE’s website for more information about increased sick leave entitlements.

You need to review and update your employees’ records to account for the new minimum sick leave entitlement. Xero automatically assigns one of the following sick leave statuses to an employee’s record based on their next anniversary date:

  • Needs review
  • Minimums met
  • Review later

Review your employees’ sick leave entitlements

  1. In the Payroll menu, select Employees.
  2. Click on the Sick Leave Review tab to review your employees’ status.

Choose the the correct Sick leave status below and follow the steps to update your employee’s record.

Employees with ‘Needs Review’ statuses

Employees with the sick leave status Needs review have their next sick leave anniversary on or after 24 July 2021 and either:

  • Current sick leave Hours Accrued Annually is below the new minimum requirement of 10 days; or
  • Sick leave Maximum to Accrue is below the minimum requirement of 20 days.

To review and update the sick leave entitlement for each employee with Needs review status:

  1. Review the employee’s sick leave entitlement based on their employment agreement.
    For example, if the employee is entitled to the minimum under the legislation, their entitlement would be 10 days.
  2. Multiply the number of sick leave days they’re entitled to based on step 1 by the Hours per Day column to get their new entitlement which you’ll need to update in the system.
    For example: An employee’s employment agreement says they’re entitled to the minimum sick leave days and their Hours per Day says four – then 10 days multiplied by four hours brings their entitlement to 40 hours sick leave per annum.
  3. Ensure their Maximum to Accrue is either blank (meaning there is no maximum) or is at least 20 times the Hours per Day.
  4. In the Status column, click the Needs review link to open the employee’s Leave record.
  5. Click Sick leave and update Hours Accrued Annually based on your calculation in step 2, and if necessary the Maximum to Accrue based on the calculation in step 3.
  6. Click Save.

Repeat the process for each employee with Needs review status.

Employees with ‘Minimums Met’ statuses

Employees with the Minimums met status have their next sick leave anniversary on or after 24 July 2021 and:

  • Current sick leave Hours Accrued Annually equal to or greater than 10 days; and
  • Sick leave Maximum to Accrue equal to or greater than 20 days.

We recommend reviewing these employees’ employment agreement to determine if they are entitled to more than the minimum.

If you need to make any adjustments to these employees’ annual entitlement, for each employee with Minimums met status:

  1. Review the employee’s sick leave entitlement based on their employment agreement.
    For example: If the employee is entitled to the minimum under the legislation plus an additional five days, this would be 15 days.
  2. Multiply the number of sick leave days they’re entitled to based on step 1 by the Hours per Day column. This is the employee’s new annual entitlement that you will need to update in the system.
    For example: An employee’s employment agreement says they’re entitled to 15 sick leave days and their Hours per Day says eight – then 15 days multiplied by eight hours and they’re entitled to 120 hours sick leave per annum.
  3. In the Status column, click Minimums met to open the employee’s Leave record.
  4. Click on Sick Leave to review the setup.
  5. Update Hours Accrued Annually based on your calculation in step 2.
  6. Click Save.

Repeat the process for each employee with Minimums met status.

Employees with ‘Review Later’ statuses

No action is required at this time for employees with a Review Later status. Their next sick leave anniversary falls before 24 July 2021.

When these employees have been included in a pay run that spans their anniversary:

  • Their Next Anniversary date will be automatically updated
  • Their Status will change to either Needs review or Minimums met

Once the employee’s anniversary has been included in a pay run, return to the Sick Leave Review tab to review the employees status and make any updates needed.

New tax rule you should consider when buying or selling a small business in 2021

Small Business Accounting Auckland Mt Eden Grafton

Are you thinking of buying or selling your business? A new tax rule comes into effect on 1 July 2021 that will have an impact on the way you negotiate.

The new rule is designed to create more certainty in purchase price allocation, which is the way the purchase price is divided up between the various types of assets.

Currently, buyers and sellers have been avoiding an agreed allocation, then often allocating different prices to the same asset in their tax returns. This tends to mean underpaid tax, so Inland Revenue (IR) has introduced new legislation to prevent mismatched allocations.

Under these new rules, the buyer and seller of a business should agree on the asset price allocation and then both follow it in their tax returns. If they can’t agree, the seller can set the allocation and notify IR (who can agree or or dispute it). If the seller misses the three month deadline to do this, then the buyer has their chance to set the allocation.

You can read more about the new rules here.

This should now be part of your negotiations

For all sales after 1 July, you should now be negotiating purchase price allocations along with everything else during the sales process. An agreed allocation will be much more straightforward if you can achieve it.

The new rules are quite complex and detailed and it is possible that they will increase compliance costs. If you’re in the process of buying or selling, or are soon to be, you may want to consider the timing. SME Financial is here to guide you through your decision-making-process.

As IR says: “It’s best to talk early with a tax professional to make sure you get the details of your sale right from the start,” so do get in touch with us immediately if you’re considering buying or selling a business.

Register for Xero Education Month: Learn more to do more

For the whole of February, Xero is hosting a stack of free online webinars to help you brush up on your business smarts, learn how to improve your resilience and foster wellbeing in your team.

Here’s what you’ll learn

It’s a chance to dive into topics like:

  • managing payroll and finances with Xero Payroll
  • getting paid on time, every time
  • checking every dollar is counted with Xero Expenses
  • learning helpful tips and tricks to save time
  • sustainable workplace practice

For these topics and more, register here.

Can’t make the live sessions?

If you can’t make it to the live webinars, visit Xero Central to watch the recordings. They will be available from 3 March to 3 April 2021.
These webinars are designed for everyone, so let your team know and help them get a better understanding of how Xero helps power small businesses around the globe.

What will the new top tax rate mean for you?

Tax Rate Changes

If you’re one of the 2% of Kiwis who earn more than $180,000 a year, it’s time to review your financial situation. From April 1, 2021, a new marginal tax rate will apply: for every dollar you earn over $180,000, Inland Revenue will now keep 39 cents instead of 33. This is expected to generate $550 million in extra income for the Government in FY2021, and brings the highest threshold into line with Australia’s, although our new top tax rate is lower than Australia’s 47%.

How much more tax will you pay?

Here are some examples of what extra tax you might pay at various income brackets:

  • If you earn $200,000, you will pay an extra $1,200 a year in tax under the new system.
  • If you earn $300,000, you’ll pay an extra $7,200.
  • If you earn $400,000, you’ll pay an extra $13,200.
  • If you earn $500,000, you’ll pay an extra $19,200.

If you’re an employee, your employer will also pay less into KiwiSaver.

Should you declare a company dividend?

You may need to declare a dividend from your business in this financial year, if profits are likely to be paid out to you next financial year and you’ll earn the top tax threshold. There will be an additional 6% in tax to pay if you miss out on declaring a dividend, so get in touch immediately. We’ll work out if this could apply to you and the extra tax won’t need to be paid.

Do you need to restructure?

If you own a business or other assets, we can help you review your structures. It’s possible these are not set up to make the most of your income under the new tax rate. The 39% top rate is out of line with other rates, such as the 28% maximum rate in a PIE fund investment or the 33% trust rate. By restructuring, we may be able to help you reduce your tax obligations. You should talk to us soon so we have time to get your new structures set up before March 31.

Inland Revenue is watching!

Restructuring your affairs is not a DIY operation. The Government has clearly signalled that it will be looking out for anyone who is intentionally restructuring solely to avoid paying the new higher tax rate. Other taxes are also being tweaked to bring them in line with the new rates, so there are lots of complexities to consider. We can help you review your structures, make changes and ensure those changes are clearly justified.

Give us a call, drop us a note or stop by our offices – we’re happy to help.

Planning how to navigate seasonal dips in income for 2021

Cashflow Management

In any normal year, seasonal dips in income can be highly challenging when you’re a small business. But, fortunately, SME Financial has some proactive ways to predict, plan for and overcome these dips in revenue.

The key to dealing with seasonal dips is to know when they’re most likely to occur, and to have measures in place to spread your income and revenue pipeline over the course of the year.

Understanding seasonality in your sector

If your business is seasonal such as pool supplies, or a ski gear specialist, you’ll be used to the peaks and troughs, but many ‘non-seasonal’ businesses experience times during the financial year where sales and revenue peak – and, on the flipside, where sales and revenue experience a pronounced dip.

When income is low at certain times of the year, it makes for challenging times.

So, what are the key ways to plan for this kind of seasonality?

  • Forecast your seasonality – it’s vital to know WHEN you’re most likely to experience any seasonal dips. Looking at benchmarking reports for your industry is one way to predict the seasonality in your niche or sector. But you can also use your own accounting data to great effect. Look back through your profit & loss reports and spot where the peaks and troughs have occurred over preceding years.
  • Charge a premium in peak time – one straightforward approach is to apply premium pricing for your products/services during the busy season. By increasing your pricing, you boost your overall revenue, giving you more working capital to see you through the leaner months when sales and income are at their lowest.
  • Offer additional peak-time services – offering added extras and other additional service lines during peak time is another way to maximise the season. In the months where customers are most engaged, look to upsell these premium services and offer more value. Satisfied clients will be more inclined to pay for added extras, giving you an increased revenue stream from the same number of customers.
  • Target other markets – exploring other related markets is another useful tactic. When you’re experiencing downtime, look for other ways to monetise your existing assets, products or services. For example, if you’re a hotel where sales peak in summertime, offer discounted conference space in the winter months to boost revenue.
  • Diversify your products/services – if one product/service has a known seasonal dip, look at adding an additional product or service to offset this downtime. For example, a a ski resort could promote bike-riding or hiking breaks during the warmer summer months to keep revenue constant. Likewise a pool maintenance firm could establish an outdoor fireplace business for the colder months.
  • Have a regional e-commerce strategy – If you’re dependent on a small local market, broadening your marketing and e-commerce strategies can help to attract a wider customer base – and bolster sales. Paid advertising through Facebook, LinkedIn or Twitter can easily target new geographical markets, bringing in new customers and giving your revenue a much-needed uplift during seasonal troughs.

Talk to us about planning for seasonality

If your business is struggling with seasonal dips, and the resulting impact on cashflow, come and talk to us. We’ll help you identify the timing of your seasonal downtime, and come up with a clear strategy for stabilizing your income across the year.

Get in touch with us today and talk to one of our experienced business advisors.