IRD Arrears Deductions

IRD arrears are notices sent from Inland Revenue to employers advising that deductions from an employee’s salary or wages are required to repay a debt owed to Inland Revenue.

When IRD request a deduction, they typically ask for the lesser of:

• 10% of the debt (given as a fixed value) each period, or
• 20% of the employee gross earnings until the debt is repaid.

In a situation where the employee earns less than $100.00 per week, then the amount to deduct is capped at $10.00.

Within DataPay, there are two components used to make deductions in the employee’s pay packet. These are:

• IRD Arrears – Fixed Amount Repayment
• IRD Arrears – Percentage Repayment

The IRD Arrears – Fixed Amount Repayment

This is the most commonly used component, as it performs the above comparison (lesser of 10% debt vs 20% gross earnings). This component requires an amount to deduct each period and also a starting debt. If the employee is paid in a fortnightly period, the amount to deduct will be two times the advised amount given by notice from IRD. If the amount to deduct is greater than 20% of the employee’s earnings, the amount to deduct will deduct the lesser and show in the pay packet. Below is an example of setting up the component for an employee. 

In the below example a fortnightly employee has a relatively low gross earnings amount. The component will take the ‘Amount to Deduct’ input from the Employee Pay Components screen but override this to 20% of the Gross Earnings as this is the lower amount.

The IRD Arrears – Percentage Repayment

This component is similar to the fixed amount version, however it will only deduct a percentage (or $10 if the earnings are below $100 per week) and not perform the comparison with a fixed amount to use the lesser value. Similar to the previous component, it will need a starting debt and a percentage amount to deduct each period.

Note: As with all debt reduction components, some care is required when altering the starting debt of the component once it has already started being processed. Reducing the starting debt to a value below what has already been deducted so far will result in a negative deduction in the next Pay Packet.