A key issue with wages is timing. So let's say you employ your first worker (or it could be yourself - but make sure you understand the implications of paying yourself wages - it can cause issues at year end). Let's say you pay them monthly. The same principles apply to other frequencies - but it reduces transactions for this example. Similarly we use male pronouns in this example but it could be male or female.
The first month you pay $4,000. You take off say $1,000 PAYE, using of course the correct tax tables to calculate the tax amount. Now usually people record this as a wages payment of $3,000. But this ignores the principle of timing. You want the gross wages shown as an expense for the month, and the deductions as liabilities. It is far better to code the cheque to wages for $4,000 and PAYE of -$1,000. So it's still a $3,000, but you've recorded the $4,000 to wages and created a liability for PAYE of $1,000.
This money is then owed by you to IRD for the employee, so this gets it correct. The same applies to Kiwisaver and any other deductions you make on his behalf.
In the following month, you pay him another $4,000, and deduct another $1,000 PAYE. But you also pay the first $1,000 to IRD. So your account for PAYE has $1,000 owing the first month. The second month it has another $1,000 owing, but it also has $1,000 paid - so again it ends with a balance of $1,000. If you paid him wages at the end of each month, you'd see the balance of the account return to zero with the payment to IRD, and then have $1,000 added back in. But usually you don't actually get a zero balance because you pay more often and / or earlier than that. The principle though is the same - the payment clears the previous balance. If it doesn't you need to investigate.
The main other deduction is KiwiSaver, and this is slightly more complex because of the employer contribution, and associated ECST. So you include the KiwiSaver deduction as you do for PAYE, but we suggest you use a separate liability account to keep the information for ease of balancing.
At the end of the month (assuming you're a small employer) you calculate the employer contribution owing on this. Normally it matches the employee deductions for the month - although this can vary. The purpose of this article is to account for these deductions rather than explain in full how to run a KiwiSaver account.
This could be entered as a bill or it could be recorded as a journal. A bill is probably slightly easier - but your system might not let you record bill payments easily when you're also paying non-bills. So we'll explain using a journal but readers can, if their system allows, enter bills. Either way, this should be entered with the date set to the last day of the same month as the deductions from wages. You debit an expense account for KiwiSaver contributions and credit the liability account for KiwiSaver.
There are alternative ways you can do this. For example you could just debit wages - but if you're trying to reconcile wages between your payroll and general ledger systems, this would complicate things. Similarly you could credit a separate liability account for your contributions - but there's usually insignificant benefit for the effort.
The balance of the KiwiSaver account at month end should be the amount you have to return to KiwiSaver in the return the following month. It has the employee deductions and your contribution in it. So when you make your payment to IRD, it will include the amount for PAYE and the amounts for KiwiSaver. The return separates these between employee contributions and employer contributions.
The latter is divided on the return into the net contribution ultimately paid to the member's scheme, and the ECST taken by IRD. You could separate those into sub-accounts if you wanted to aid these calculations - but it's not necessary to get the accounting correct. If you did then you'd need to include separate lines splitting these in the payment to IRD. Then each sub-account should come to nil after the payment is made to IRD and entered.
If you follow these procedures then your accountant should not have major issues at year-end.