Wages as Cash Payments - Timesheet Entry, Calculation and Paying Tax

When you pay your employees in cash, they still have to meet their income responsibilities with the IRD - such as paying PAYE and other deductions. This article shows you how to enter these cash transactions into Thankyou Payroll.

Updated: May 2024

Regardless of how employees receive their wages, they still have tax and other obligations that must be paid. To calculate the maximum amount of wages you can pay as cash, load and process their timesheet in Thankyou Payroll.

Any after-tax deductions must be allowed for in the Net. Our recommendation is to load the pay as normal - the cashed wages figure should never be more than the original Pay Day Transfer figure (before adding the cash transaction to the timesheet).

*The difference between the employee's 'Gross' and 'Net' will be filed and paid to the IRD.

If employees are paid cash outside of the payroll system, you can record this transaction in two ways:

• Creating a Custom Pay Type for this transaction (Recommended)
• Using the 'Other Debt (-)' pay type
• What will I see on the Pays Dashboard when loading a Cash Transaction?

Let's look at these options.

Creating a Custom Pay Type

Creating a Custom Pay Type for cash transactions is recommended as you can specify what the payment was so it will be clearly shown on the employee's pay slip as well. This makes payroll recordkeeping and transparency so much easier.

Here's how to do this:

Go to the Pay Types Tab of the Employee's Profile to create a new Custom Pay Type for this employee. 

1. Create a Non-Taxable deduction Custom Pay Type.
2. Enter the name of the payment so it is easily identified on the payslip.
   
   1. In this example, we called the pay type - Cash Wages Paid, as this is what the payment is for.
3. Set the rate to -1, so the actual amount paid is entered in the timesheet.
4. Set the rate to 'per unit'.
5. You can add tracking for this pay type to make your reporting easier. This pay type will show up to be selected when you do a pay type report.
6. Update this tab to save the new Custom Pay Type just created.

Entering the Custom Pay in the Timesheet:

The cashed wages figure must never be more than the original Pay Day Transfer figure of the timesheet. We cannot process a negative pay.

1. In the employee timesheet, add their standard pay as usual.
   1. Add any allowances and deductions as usual. Do not add the cash wages transaction yet.
   2. This timesheet example is for a casual employee.
2. Update and Save the timesheet to have the calculations done.
   1. The Pay Day Transfer amount is what the employee should receive for this pay period. 
   2. If you are paying the total amount of wages as cash, this is the amount you will use for the cash wages transaction.
      
3. Note the Net amount in the Pay Summary.
   1. Non-taxable deductions (such as this cash wages transaction) will be deducted from this Net amount, and applied to the 'Pay Day Transfer' total.

4. Add a new row to the same timesheet week by clicking the right 'Add row' + sign.

5. Select your Custom Pay Type just created from the dropdown menu.

   1. For this example we called it 'Cash Wages Paid'.

6. Add the amount paid out in cash to the timesheet row.

   1. Do not input the $ sign.

   2. Use a full stop, not a comma if cents are also included.

   3. For this example, the employee received their full wages as cash - so the amount is the timesheet original Pay Day Transfer amount as in step 2.b. The amount paid in cash can be any amount, as long as it is less than or equal to the Pay Day transfer amount. We cannot process a negative value timesheet.
   4. Note this deduction shown in the Pay Summary below the Net amount.

7. Update and save the timesheet. The Pay Day Transfer amount will now update to reflect this deduction.

   1. If you've paid out all the wages as cash, the pay day transfer will be $0, meaning that Thankyou Payroll will not pay wages into this employee's account for this pay period (as they have already received their wages as cash.)

Let's look at what you'll see on the Pays Dashboard for this transaction.

Using Other Debt (-) Pay Type

Using the 'Other Debt (-)' system pay type is an easy way to record cash wages paid, but it is not specific. All 'Other debt (-)' transactions are reported on as a pay type in Quick Reports, but as this is generic you might not remember what the specific deduction was for seven years down the line. Again, we highly recommend creating a Custom Pay Type for transparency and recordkeeping purposes.

Here's how to add 'Other Debt (-) to a timesheet:

Other debt (-) is set up as a non-taxable deduction. The cashed wages figure must never be more than the original Pay Day Transfer figure of the timesheet. We cannot process a negative pay.

1. In the employee timesheet, add their standard pay as usual.
   1. Add any allowances and deductions as usual. Do not add the 'Other debt (-)' transaction yet.
   2. This timesheet example is for a casual employee.
2. Update and Save the timesheet to have the calculations done.
   1. The Pay Day Transfer amount is what the employee should receive for this pay period. 
   2. If you are paying the total amount of wages as cash, this is the amount you will use for the cash wages transaction.
      
3. Note the Net amount in the Pay Summary.
   1. Non-taxable deductions (such as this 'Other debt (-) transaction) will be deducted from this Net amount, and applied to the 'Pay Day Transfer' total.

4. Add a new row to the same timesheet week by clicking the right 'Add row' + sign.

5. Select 'Other debt (-)' from the dropdown menu.

6. Add the amount paid out in cash to the timesheet row.

   1. Do not input the $ sign.

   2. Use a full stop, not a comma if cents are also included.

   3. For this example, the employee received their full wages as cash - so the amount is the timesheet original Pay Day Transfer amount as in step 2.b. The amount paid in cash can be any amount, as long as it is less than or equal to the Pay Day Transfer amount. We cannot process a negative value timesheet.
   4. Note this deduction shown as 'After tax deductions' in the Pay Summary below the Net amount.

7. Update and save the timesheet. The Pay Day Transfer amount will now update to reflect this deduction.

   1. If you've paid out all the wages as cash, the pay day transfer will be $0, meaning that Thankyou Payroll will not pay wages into this employee's account for this pay period (as they have already received their wages as cash.)

Let's look at what you'll see on the Pays Dashboard for this transaction.

What will show on the Pays Dashboard?

You can fund this pay as normal. You will see a lower-than-usual deposit amount reflected on the Pays Dashboard.

Let's have a look:

For this example, only the one employee is toggled on for this pay. This is so you can see where the numbers come from. 

1. The 'You deposit box' has the amount that must go to IRD and other places such as Payroll Giving.
   1. This amount includes KiwiSaver contributions, student loan deductions, MOJ fines, child support payments and Payroll Giving.
   2. You still have to transfer this amount to us, so we can transfer this to IRD.
2. The 'We'll pay' amount is zero, because we will not pay this employee their wages into their bank account. You've already paid them in cash.
3. Note: In the employee summary below the Dashboard, you will see the total 'Gross' amount for this pay next to the employee's name. This is used for the employee's PAYE calculation.