Creating Custom Deduction Pay Types

Deductions are amounts taken from an employee's pay to meet legal requirements or per the employee's written request. This article shows you how to create recognisable custom pay types for clarity on payslips, tracking and record keeping.

Updated: October 2024

Custom Deduction Pay Types can clarify your payslip and specify exactly what is included in the pay for record-keeping and tracking purposes. These are created in the Employee Profile. Follow this link to learn more about custom pay types and for a walkthrough of the Pay Types tab.

Let's look at Deductions

Deductions set up with Custom Pay Types will be excluded from the ‘You deposit’ amount - meaning that Thankyou Payroll doesn’t manage these deductions.

*As the funds remain in your account, you as the employer need to send this money where it needs to go e.g. when setting up WINZ deductions - you have to manage the payment to WINZ.

Deductions are amounts taken out of an employee’s pay to do the following:

to meet legal employment requirements - Mandatory Deductions, such as PAYE. All employers must make these deductions from employee pay when directed to do so.
to comply with court orders, such as fines or penalties - Court-Ordered Deductions
to comply with the employee’s written request - Employee-Authorised Deductions, such as union fees. These are the types of deductions for which to create custom pay types.

The Thankyou Payroll system has pre-programmed ways of calculating mandatory deductions in compliance with legal requirements. These mandatory deductions are:

PAYE (Income tax) - automatically calculated based on tax code and displayed in pay summary and payslip.
ACC levies - Employee ACC Earner’s Levies included in PAYE calculations. *Employer ACC levies will be invoiced annually to you as an employer by IRD.
Student Loan deductions - automatically calculated based on tax code and threshold.
KiwiSaver Contributions - set up in the Employee Profile KiwiSaver Tab and calculated as part of the pay summary.
Child Support Contributions - set up in the Employee Profile KiwiSaver & Child Support Tab and calculated as part of the pay summary
IRD debt deductions - total amount owed is added to a timesheet only ONCE using the system set-up pay type “IRD debt [+]’ and the system manages these deductions further.
Ministry of Justice Fines - set up in the Employee Profile Fines & Alt Accounts tab and automatically added to pay summaries as an after-tax deduction. Thankyou Payroll manages these deductions (funds and filing) so you don’t have to.
- ALL other court order fines must be done through a custom pay type and managed by you, similar to WINZ payments.

Our system also has a pre-programmed way to manage Payroll Giving deductions, so you should not create a custom pay type for these:

Payroll Giving - set up and updated in the Employee Profile Payroll Giving tab and automatically added to pay summaries. Thankyou Payroll manages these deductions (funds, tax rebate and filing), so you don’t have to.

Here are some custom deduction set-up examples to set you off on the right track:

Taxable
Overpayment

Workride Scheme
Salary Sacrifice

*with written agreement to repay
- load normal time but deduct Overpayment to recognise KiwiSaver/Student loan and PAYE calculated on the overpayment amount.

*Repayment in this scheme is exempt from FBT

*Employer registration required.

Most custom deductions will be made with written request from the employee’s take-home pay, after they have paid tax on their income.
Here are some common examples of after-taxable deductions:

Non-taxable WINZ	Non-taxable Rent
Non-taxable Union Fees	Non-taxable Repayment of Loan

Further Resources

To find out more about creating custom allowance pay types, follow this link.