Student loan processes (New Zealand)
The following topics explain the processes you need to follow for a range of student loan scenarios.
Standard process
In this example, Michael Smith makes a standard student loan repayment of 12% of his gross pay over the threshold ($19,084 per year).
Set up the employee's record. See Employee tax codes (New Zealand).
Michael Smith's record contains the following values:Field Values Tax code M SL Auto-pay Yes Create the standard student loan deduction. See Standard.
The Student Loan - Standard deduction contains the following values on the Details (iii) tab:Field Values Calculation method L. Student loan Deduction class S. Student loan reduction Sub-class Standard Process the employee's transactions to automatically create the 12% student loan deduction.
Processing Michael Smith’s pay creates a Student Loan - Standard deduction for $198.24.
Standard calculation
Michael’s student loan deduction depends on his gross income in the current pay. Pay processing used the following steps to calculate Michael’s student loan deduction value.
- Calculate Michael’s current gross pay:
- Include all taxable allowances.
Exclude non-taxable allowances and extra payments.
If no special tax code exists for extra payments, the student loan deduction is 12% of the extra payment amount.- Round down to dollar amount.
Calculate student loan repayment threshold per pay period.
-
Inland Revenue sets the student loan repayment threshold.
- The student loan repayment threshold for 2013-2014 is $19,084.00: 19,084 / 52 weekly pays per year = 367.00
- Round down to three decimal places.
-
- If Michael’s gross pay is greater than the student loan repayment threshold, then calculate Michael’s student loan repayment for this pay period:
Voluntary fixed process
Employees can voluntarily make additional student loan repayments, and they usually make them as a fixed amount not a percentage of income. You set up additional repayments as permanent transactions. When the employee asks you to set up an additional repayment, you should determine the required start and end dates so you can enter them in the permanent transaction. When you open a pay for the employee, PayGlobal will copy the fixed deduction across to the employee's transactions. When you process the pay, PayGlobal automatically creates the standard 12% student loan transaction and calculates the voluntary fixed transaction value.
In this example, Michael Smith already makes standard student loan repayments and he wants to make an additional voluntary repayment of $20 per week from 01/04/2013 to 31/03/2014.
Michael's record contains the following values:
| Field | Values |
|---|---|
| Tax code | M SL |
| Auto-pay | Yes |
Create a Student Loan - Voluntary $ deduction with the following values:
Field Values Calculation method F. Fixed amount Deduction class S. Student loan reduction Sub-class Voluntary (SLBOR) On Michael’s Permanents tab, add a permanent Student Loan – Voluntary $ deduction for the following values:
Field Data Quantity 1.00 Rate 20.0000
Michael wants to pay an additional $20 per week.
Begin date 01/04/2013 End date 31/03/2014 
Open Michael’s next pay.
PayGlobal copies the Student Loan – Voluntary $ deduction from Michael’s permanent transactions.Process Michael’s transactions.
PayGlobal automatically creates Michael's standard 12% student loan transaction and calculates his Student Loan – Voluntary $ values.
Voluntary percentage process
The process for voluntarily student loan repayments as a percentage of income is similar to the Voluntary Fixed Process.
In this example, Wendy Buller already makes standard student loan repayments and she wants to make an additional voluntary repayment of 2% per week from 01/04/2013 to 31/03/2014.
Wendy's record contains the following values:
| Field | Values |
|---|---|
| Tax code | M SL |
| Auto-pay | Yes |
Create a Student Loan - Voluntary $ deduction with the following values:
Field Values Calculation method F. Fixed amount Deduction class S. Student loan reduction Sub-class Voluntary (SLBOR) On Wendy’s Permanents tab, add a permanent Student Loan – Voluntary % deduction for the following values:
Field Data Quantity 1.00 Rate 2.0000
Wendy wants to pay an additional 2% per week.
Begin date 01/04/2013 End date 31/03/2014 
Open Wendy’s next pay.
PayGlobal copies the Student Loan – Voluntary % deduction from Wendy’s permanent transactions.Process Wendy’s transactions.
PayGlobal automatically creates Wendy’s standard 12% student loan transaction and calculates her Student Loan – Voluntary % values.
Catch-up process
If an employee has not made sufficient student loan repayments in previous years, IRD will tell their employer to deduct additional repayments to recover the shortfall. The employee has to make these commissioner-instigated repayments in addition to their standard 12% repayment.
You need to set up these commissioner-instigated repayments as reducing balance loans.
In this example, Jamie Dawson currently makes standard 12% student loan repayments, and his record contains the following values:
| Field | Values |
|---|---|
| Tax code | M SL |
| Auto-pay | Yes |
The IRD notice contains the following information:
| Employee's name | IRD number | Total amount to recover | Compulsory extra deduction rate |
|---|---|---|---|
| Jamie Dawson | xxx-xxx-xxx | $5,000.00 | 41.67% |
Important: The standard repayment rate is 12%, but the maximum additional deduction rate is still 5%. As a result, the additional deduction is no longer 50% of the standard rate (12% * 50% = 6%), it is 41.67% (12% * 41.67% = 5%). | |||
The following table shows extra deduction values derived for other rates:
| Compulsory extra deduction rate | Extra deduction |
|---|---|
| 33.33% | 12% * 33.33% = 4% |
| 25.00% | 12% * 25.00% = 3% |
| 16.67% | 12% * 16.67% = 2% |
| 8.33% | 12% * 8.33% = 1% |
The notice states that "The amount to be deducted is a percentage of [the employee's] standard student deduction that applies for the pay period and not of their gross income".
Jamie is on a main tax code so the standard deduction is 12% of his gross pay over the threshold, and the extra deduction is 41.67% of the standard deduction, which is 5% of his gross pay over the threshold so you will use this value (5.00) in Jamie's Employee Loan record.
The IRD has asked you make an additional 5% student loan repayment for Jamie to repay $5,000 starting from his next pay, which is 01/04/2013.
- Create an SLCATCH-UP Loan Reasons record.
Create a Student Loan - Catch-up deduction with the following values:
Field Values Reducing balance Yes Calculation method L. Student loan Deduction class S. Student loan reduction Sub-class Catch-up (SLCIR) See Catch-up.
On Jamie's HR |> Misc > Loans tab, add an Employee Loan record with the following values:
Field Values Principal 5000.00 Loan Reason SLCATCH-UP Do not use the interest fields for student loan repayments.
Repayment details tab:Field Values Repayment begin date 01/04/2013 Repayment amount 5.00 The Student Loan - Catch-up deduction has Calculation method = "L. Student loan". So, for employees on a main tax code, PayGlobal excludes the employee's first $19,084 (annual) or $367 (weekly) of earnings and calculates the catch-up repayment as 5% (Repayment amount) of their earnings over the threshold. For employees on a secondary tax code, the threshold is ignored.
Deduction Student Loan - Catch-up 
- Attach a scanned copy of the IRD notice to Jamie's Documents tab.
When you open Jamie’s next pay after 01/04/2012, PayGlobal creates a 5% Student Loan - Catch-up transaction from his Employee Loans record. When you process Jamie’s transactions, PayGlobal also creates Jamie’s Student Loan - Standard deduction.
PayGlobal will continue generating Jamie’s 5% Student Loan - Catch-up transactions until his Total deducted value in this loan matches the Principal value, and his loan Balance is 0.00.
If the IRD send you a notice telling you to stop repayments before the employee's catch-up amount is fully paid, then you should manually change the Principal to update the Total deducted and ensure that the Balance is 0.00 so no further repayments are made.
If Jamie's tax code changes to a non-student loan tax code (see repaymentexemptioncertificate), his standard repayments stop automatically. However, you need to stop his Student Loan - Catch-up transactions by changing his Employee Loans > Repayment Details
tab > Repayment begin date to the day after his repayment exemption ends.
Special tax codes and student loans process
Special tax codes (STC) can only be used to change an employee's income tax deduction rate. If the employee has a student loan and they also need to change their student loan repayments, they can apply for a Special Repayment Rate on secondary income or a repayment exemption. See repaymentexemptioncertificate.
sSecondary income earners
Secondary income earners with student loans who provide you with an IR23BS must continue to repay student loans at the standard rate, unless they provide you with a repayment exemption certificate or a special deduction rate certificate.
- If an employee provides you with repayment exemption certificate, set their tax code to "STC".
- If an employee does not provide you with a repayment exemption certificate nor a special deduction rate certificate, set their tax code to "STC SLS".
- If an employee does not provide you with a repayment exemption certificate, but they provide a special deduction rate certificate, set their tax code to "STC SLS" and follow the Special Repayment Rate Process.
Special repayment rate process
Special repayment rates only apply to an employee's secondary income for a maximum of 3 months at a time. When the IRD sends an employee a special repayment letter or certificate, the employee needs to sign the letter and give it to their employer who can then set up the special repayment rate.
In this example, you need to change Julian Garrison's student loan repayment rate to 8%, and his record contains the following values:
| Field | Values |
|---|---|
| Tax code | S SL The IRD did not change Julian's tax details so his tax code remains the same. |
| Auto-pay | Yes |
Julian's special repayment letter from the IRD contains the following values:
| Field | Values |
|---|---|
| Special rate | 8% |
| Start date | 01/04/2013 |
| End date | 30/06/2013 |
Create a Student Loan - Special Rate deduction with the following values:
Field Values Calculation method L. Student loan Deduction class S. Student loan reduction Sub-class Standard On Julian's Permanents tab, add a Student Loan - Special Rate deduction with the decreased percentage.
Field Value Details tab Percentage 8.0000 Effective Dates tab Begin date 01/04/2013 End date 30/06/2013 
Attach a scanned copy the IRD letter to Julian's Documents tab.
Open Julian’s next pay.
PayGlobal copies the Student Loan - Special Rate deduction from Julian’s permanent transactions.Process Julian’s transactions.
PayGlobal calculates Julian’s Student Loan – Special Rate value.
- In June, review Julian's tax situation and update his record from 01/07/2013, if required.
Repayment exemption certificate process
Employees may be eligible for a student loan repayment exemption.
The IRD provides eligible employees with a repayment exemption certificate that advises the employer not to deduct student loan repayments. This certificate is valid for a maximum of one tax year (1 April - 31 March) at a time. It covers the time between semesters, including the Christmas break, as long as the employee is continuing their study programme in the next semester. If the employee is going to continue study in the next tax year, they need to reapply for the exemption.
Exempt employees do not have to use a student loan (SL) tax code, and they do not need to make student loan repayments.
In this example, the IRD issued Peter van der Loo with a repayment exemption certificate so he does not have to make standard student loan repayments for the first quarter of the 2013-2014 tax year.
Peter's record contains the following values:
| Field | Values |
|---|---|
| Tax code | M SL |
| Auto-pay | Yes |
The repayment exemption certificate contains the following values:
| Field | Values |
|---|---|
| Start date | 01/04/2013 |
| End date | 30/06/2013 |
Important: Ensure that you apply these dates correctly. | |
Before you process and close Peter's pay for 01/04/2013, enter the following value on his Tax tab:
Field Values Tax code M Attach a scanned copy of the repayment exemption certificate to Peter's Documents tab.
- Outside PayGlobal, record the end date of the certificate because you will need to resume Peter's student loan repayments from this date. In this example, you would change Peter's Tax code back to M SL on 01/07/2013.
Arrears payment process
When an employee is in arrears for payments such as tax, student loans or family tax credit overpayments, the IRD sends the employer a Section 157 notice. The notice contains the Total Amount to Repay, and the Rate (% of Salary and Wages) that it must be repaid at. The employer needs to send the payments to the IRD by the end of each calendar month, separately from PAYE payments.
The arrears payment process is not the same as the catch-up process (on page 38) that uses a deduction with Sub-class = "Catch-up (SLCIR)".
In this example, Brent Green owes $54.76 in student loan arrears. The IRD has sent you a Section 157 notice telling you to make weekly deductions of the lesser of $5.47 or 20% of Brent's gross wages. These deductions need to start from Brent's next pay and continue until IRD asks you to stop.
You need to set up Brent's arrears payments as a reducing balance loan.
Create an Arrears deduction with the following values:
Field Value Type D. Standard deduction Taxable No Reducing balance Yes Direct credit Yes This example shows how to pay arrears electronically. If you opt to make the payment by posting a cheque or at a bank, then set Direct credit to No and do not enter bank details. Calculation method A. Arrears payment Bank account 030049-0001100-027 Account name INLAND REVENUE Bank code ARR See Arrears.
Create an IRD Arrears Loan Reasons record.
On Brent's HR > Misc > Loans tab, add an Employee Loans record with the following values:
Field Values Principal 54.76 Loan Reason IRD Arrears 
Repayment Details tab.
Field Values Repayment begin date 01/04/2013 Repayment amount 5.47 Deduction Arrears payment 
When you exit the Deduction field, the following message appears:
This message appears when you have changed the Deduction field to a valid, non-blank value, and the selected deduction has Direct credit = "Yes".Click Yes to copy bank details from the Deductions > Details (iii) tab to the Employee Loans > Bank Details tab.
In addition, because Company Settings has Country = "NZ" and the deduction Calculation method = "A. Arrears payment", the employee's IRD number is copied into the Employee Loans > Bank Details tab > Bank particulars field.
- Attach a scanned copy of the IRD Section 157 notice to Brent's Documents tab. When you open Brent's next pay after 01/04/2013, PayGlobal creates an Arrears transaction from his Employee Loans record.
PayGlobal will continue generating Brent's Arrears transactions until the Total deducted value in his loan matches the Principal value, and his loan Balance is 0.00.
If the IRD send you a notice telling you to stop payments before the employee's catch-up amount is fully paid, then you should manually change the Principal to update the Total deducted and ensure that the Balance is 0.00 so no further repayments are made.
The "A. Arrears payment" calculation method performs the following steps to derive the deduction rate amount:
- Get employee's gross pay.
- Calculate the period adjustment factor:
Number of periods to tax * Weeks on period (such as 4.3333 for monthly employees) - Calculate the threshold for the employee's pay:
$100 * Period adjustment factor (Step 2) - Calculate repayment rate:
Employee loan default repayment rate * Number of periods to tax - 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. - 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)
