Finance, GST and Payroll Information (Workride Plus)
Standard Disclaimer: The information provided in this document is for informational purposes only and reflects the opinions of the author only. It is not financial, tax, or legal advice. Please consult with your financial and accounting professionals for advice around your specific situation.
Summary
Many businesses set up internal methods to actively monitor and account for the Workride benefit with staff. This can sometimes be facilitated by your finance/payroll system, however, in some cases may require an internal costing unit or a separate spreadsheet to track.
This guide is intended to provide an overview and summary. Please reach out to your Workride Account Manager or support@workride.co.nz for the detailed Workride Plus accounting and payroll guide.
How do the funds flow with Workride Plus?
Standard Accounting Approach - Workride Plus
Workride Plus invoices are tied to your pay cycle and structured so that every dollar invoiced has a corresponding salary sacrifice already collected. The employer's GL balance nets to zero across the benefit term.
The three things your finance team needs to know
Most employers run Workride through a dedicated GL code ("Workride Salary Sacrifice Expense"). Each period involves three accounting entries:
- Debit the GL code for payroll sacrifices collected that period
- Record a GST output credit on the total salary sacrifice amount (per IRD ruling BR Prd24/04, see below)
- Record the Workride invoice against the same GL code and claim the GST input credit
The invoice and the payroll sacrifice total may not match exactly in every period due to pay cycle timing, but they net to zero over the full benefit term.
Early termination
If an employee leaves before the term ends, Workride pauses billing immediately and issues a close-out invoice covering only the days of benefit up to the termination date. Workride also provides a calculator to help payroll reconcile any surplus or shortfall with the employee.
For the full breakdown including worked examples and the payroll settlement process, request the billing information pack (support@workride.co.nz).
GST Treatment
Inland Revenue has provided guidance around how GST is required to be treated when using Workride. The following has been extracted from the Inland Revenue's binding ruling, Page 5. (Link here to IRD binding ruling.)
How the Taxation Laws apply to the Arrangement:
"(c) The Employer can claim the GST charged on the supply of the Services by WorkRide (being the facilitation of the Arrangement) as input tax (as defined under s 3A(1)(a) of the GSTA) under s 20(3) and 20(3C) of the GSTA to the extent to which the Services are used for making taxable supplies.
(d) The sacrifice of salary under a Salary Sacrifice Agreement is consideration for a taxable supply by the Employer to the Employee under s 8 of the GSTA of procuring the provision of the Equipment to the Employee. The value of the supply for the purposes of s 10(2) of the GSTA is the amount of the salary sacrificed."
Please refer to Inland Revenue's Binding Ruling page 5 - (Link here to IRD binding ruling.)
In our opinion (not advice), this dictates that GST could be claimed for the OPEX of Workride by the employer, but then is required to be credited due to the supply between the employer to employee. For simplicity this could be claiming GST for OPEX each monthly instalment, and then crediting for supply to the employee each month, which ultimately creates a GST-neutral activity. We always stress that is opinion, and to please consult with your financial and accounting professionals for advice around your specific situation.
Inland Revenue has provided guidance around how GST is required to be treated when using Workride. The following has been extracted from the Inland Revenue's binding ruling, Page 5. (Link here to IRD binding ruling.)
How the Taxation Laws apply to the Arrangement:
"(c) The Employer can claim the GST charged on the supply of the Services by WorkRide (being the facilitation of the Arrangement) as input tax (as defined under s 3A(1)(a) of the GSTA) under s 20(3) and 20(3C) of the GSTA to the extent to which the Services are used for making taxable supplies.
(d) The sacrifice of salary under a Salary Sacrifice Agreement is consideration for a taxable supply by the Employer to the Employee under s 8 of the GSTA of procuring the provision of the Equipment to the Employee. The value of the supply for the purposes of s 10(2) of the GSTA is the amount of the salary sacrificed."
Please refer to Inland Revenue's Binding Ruling page 5 - (Link here to IRD binding ruling.)
(d) The sacrifice of salary under a Salary Sacrifice Agreement is consideration for a taxable supply by the Employer to the Employee under s 8 of the GSTA of procuring the provision of the Equipment to the Employee. The value of the supply for the purposes of s 10(2) of the GSTA is the amount of the salary sacrificed."
Please refer to Inland Revenue's Binding Ruling page 5 - (Link here to IRD binding ruling.)
In our opinion (not advice), this dictates that GST could be claimed for the OPEX of Workride by the employer, but then is required to be credited due to the supply between the employer to employee. For simplicity this could be claiming GST for OPEX each monthly instalment, and then crediting for supply to the employee each month, which ultimately creates a GST-neutral activity. We always stress that is opinion, and to please consult with your financial and accounting professionals for advice around your specific situation.
Payroll Information
The Workride Benefit Scheme operates using a 'salary sacrifice' system. When an employee opts to forgo a part of their salary for a Workride-approved benefit, this deduction is made from their pre-tax income. As a result, the employee ends up paying less in PAYE, Kiwisaver, and ACC levy, which in turn leads to a reduced Kiwisaver and ACC levy bill for you, the employer.
Any payroll system has the ability to implement a salary sacrifice, as at the most basic level it is the gross reduction of an employees salary. Eg. Instead of being paid a gross salary of $80,000 a year , it is adjusted to meet the agreed salary sacrifice. Which in the example of a $5200 sacrifice is now $74,800.
During the Workride process, when the employee picks up their ride benefit in-store Workride will automatically send through the Employees Salary Sacrifice guidance to payroll, this information is what is used to then implement into your payroll system.
Workride opinion only: When a salary sacrifice arrangement is part of a repackaged employment agreement, resulting in a reduced gross taxable salary, it can impact how annual leave pay is calculated under the Holidays Act 2003 in New Zealand.
Key Considerations
Ordinary Weekly Pay and Average Weekly Earnings:
- According to the Holidays Act, annual leave should be calculated at the higher of:
- Ordinary Weekly Pay: This is the amount an employee would earn in a typical week, as defined in Section 8. If the salary sacrifice changes the employee’s base salary in the employment agreement, their ordinary weekly pay calculation might be based on the reduced amount.
- Average Weekly Earnings: Defined in Section 21(2), this considers the employee's total gross earnings over the previous 12 months. Salary sacrifice arrangements typically reduce gross taxable earnings, which means that average weekly earnings would also reflect the reduced post-sacrifice salary.
Impact of Reduced Taxable Salary on Leave Calculations:
- Since salary sacrifice arrangements lower an employee's gross taxable salary, both ordinary weekly pay and average weekly earnings may end up being calculated based on the reduced (post-sacrifice) salary amount. This means the annual leave pay could be lower than if it were calculated based on the original pre-sacrifice salary.
Key Takeaway:
A conservative position would be to keep annual leave rates as the pre-sacrifice gross salary value.
Payroll guides for setting up the Workride salary sacrifice
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