Schemes like WorkRide allow employees to acquire a commuting vehicle - a bike, e-bike, or scooter - by temporarily reducing their gross salary or wages. The reduction is formalised through a Salary Sacrifice Agreement, which is a variation to the employee's employment agreement.
This is not a deduction in the usual sense. IRD's binding ruling on WorkRide describes the arrangement as one where "the Employer and Employee agree to reduce the Employee's annualised gross salary or wages for a period of time."
Because the gross is genuinely reduced, all calculations that flow from gross (PAYE, KiwiSaver employee contributions, employer KiwiSaver contributions, and ACC earner levies) are based on the lower figure.
This is the correct treatment, and it is consistent with how WorkRide markets the benefit for employers (to achieve savings on KiwiSaver and ACC costs as a consequence of the reduced gross).
How to set this up in PaySauce
Because PaySauce deductions operate on net pay (after tax), they are not the right mechanism for a salary sacrifice arrangement. Using a post-tax deduction would not correctly reduce the employee's taxable income, and would overstate their gross earnings for PAYE, KiwiSaver, and ACC purposes.
The correct approach in PaySauce is to reduce the employee's base salary or hourly rate for the duration of the salary sacrifice period, to reflect the reduced gross agreed in the Salary Sacrifice Agreement.
For salaried employees:
Open the employee's payments
Update their annual salary to the reduced amount (original salary minus the annual sacrifice amount)
At the end of the sacrifice period, restore the original salary
For waged employees:
Work out the equivalent per hour reduction and apply it to the employee's hourly rate for the duration of the arrangement.
Before you make this change
A salary sacrifice must be supported by a valid written agreement between you and the employee: this is a condition of IRD's binding ruling and a requirement under the Employment Relations Act. WorkRide provides a template Salary Sacrifice Agreement. Do not make any payroll change until this agreement is signed.
The agreement should specify:
The amount being sacrificed (total and per pay period)
The start and end date of the sacrifice period
That the employee's gross salary or wages is being reduced, not that a deduction is being taken from net pay
What this means for the employee
When the salary sacrifice is correctly applied as a reduction to gross:
PAYE is calculated on the lower gross, so the employee pays less income tax
KiwiSaver employee deductions are calculated on the lower gross value
KiwiSaver employer contributions are calculated on the lower gross value
Reported taxable earnings will reflect the reduced gross for the period - this is correct and expected; the employee's gross earnings for the sacrifice period are genuinely lower
Leave entitlements will factor in lower earnings in effect during the sacrifice period
The employee should be aware of the effects of this arrangement. e.g. reduces KiwiSaver contributions, reduced earnings for leave purposes, reduced reported earnings.