Why employee onboarding is so important

Why employee onboarding is so important

Even before you start recruiting for a position, you should be prepared to make a new employee’s introduction to the business as smooth and comprehensive as possible.

Onboarding (also known as induction) is a broad, structured process to provide a new team member with all the tools, information, and insight they need to quickly become an effective contributor, while at the same time integrating them with the company and its culture.

Sure, you could set the person up with tools they need, give them the company handbook, and tell them to get cracking on some initial tasks, but don’t expect great results.

Onboarding is an investment in the long-term development of your people and your business. So let’s look at the main reasons you should have a thorough onboarding process for all new employees:

  • Gets them up to speed faster – a structured approach fully prepares an employee for their position and provides support as they grow into it, which minimises disruption to the business.
  • Higher employee engagement – successful onboarding gets the employment relationship off to a solid start, boosting confidence, job satisfaction, and ongoing engagement.
  • Better staff retention – Research has proven that employees who complete a structured onboarding process are far more likely to stay with the company, which saves time and money in the long run.
  • Teaches about company goals and culture – successfully establishing a new employee while showing them how they contribute to the business’ wider goals helps connect them to the company and the existing team.
  • Supports good hiring decisions and recovery from poor ones – induction is a crucial time for new workers to decide if the job matches their expectations and it also quickly shows employers if the person is right for the position.
  • Sets a base for further learning and development – initial job training lays a good foundation for ongoing growth and helps the business find out about a new person’s aspirations, so you can design a development plan to build their skills.
  • Better customer satisfaction – research shows that positive employee experience leads to better customer experience, which improves overall business profitability.

This article provides more reasons why every organisation should take onboarding seriously.

Property and Tax update 2021

Property and Tax update 2021

On 23 March 2021, changes to tax rules for investment properties took investors by surprise. There has been widespread commentary with more to come as the detail unfolds.

In overview:

  • The bright-line test has been extended from 5 to 10 years for properties purchased on or after 27 March 2021
  • The current exemption for the main home changes for properties acquired on or after 27 March 2021, making them subject to a ‘change of use’ rule
  • From 1 October 2021 property owners will not be able to claim interest on residential investment property acquired on or after 27 March 2021, and interest deductions on borrowings for residential investment property acquired before 27 March 2021 will be phased out over the next four income years.

Bright-line extension

Different rules apply for different scenarios:

  • For properties purchased from 27 March 2021, the bright-line test period is 10 years.
  • If you already own a rental, and, the old rules apply:
    • a 5-year bright-line test if you purchased the property on or after 29 March 2018, or
    • a 2-year bright-line if you purchased the property from 1 October 2015.
  • If it’s a new build, the proposal is that it will be subject to a 5 year bright-line test.
  • If you’re in the middle of buying a residential rental property, it’s more complex. Generally, if you entered into a binding contract to purchase a property before 27 March, you are within the old rules and the 5-year bright-line test applies. However, depending on variables around when the offer is accepted or the exchange and timing of counter offers, the 10-year bright-line test may apply. Talk to us if you’re in doubt.

‘Change of use’ and the main home exemption

Under the current rules, if the property has been used as the person’s main home for over half of the relevant bright-line period, there is a complete exemption from tax under the bright-line test. Under the proposed changes, properties acquired on or after 27 March 2021 will be subject to a ‘change of use’ rule. If a property switches from being the owner’s main home for more than 12 months, then a proportion of the sale profits of a property sold during the bright line period will be taxed, based on the ratio of time that the property was and wasn’t used as the main home. The existing main home exemption rules continue to apply for residential property acquired on or after 29 March 2018 and before 27 March 2021.

Interest deductibility

The rules are graduated depending on when the property is acquired:

  • for residential property acquired on or after 27 March 2021, taxpayers won’t be able to claim deductions for interest from 1 October 2021
  • for properties acquired before 27 March 2021, interest on loans can still be claimed as an expense. From 1 October 2021 – 31 March 2023, the amount claimable will be reduced to 75%, reducing by 25% each following income year, until it is phased out completely from 1 April 2025.

The Government is also consulting on whether an exemption for new builds acquired as residential investment property should apply. Property developers and builders who build properties to sell will still be able to claim their interest expenses.

Short-stay Accommodation

Residential properties used to provide short-stay accommodation, where the owner does not live in the property, will be subject to the bright-line test and cannot be excluded as business premises.

Our Recommendation

Some of the proposals are subject to consultation. If you have the opportunity to comment, please make it clear how the changes affect you. If you own a residential rental or one used for short-stay accommodation, or if you are considering buying a second property, please contact us, to discuss the tax implications.

The 39% tax rate – Your questions answered

The 39% tax rate – Your questions answered

New Zealanders earning over $180,000 a year will now pay a 39% tax rate, which came into effect on 1 April 2021. If this includes you, are you aware of how your tax obligations change when it comes to shares, property, FBT, superannuation tax, or trusts?

The 39% tax rate and trusts

From now on, you’ll need to disclose a lot more information to Inland Revenue in your annual trust tax returns. The additional information will provide the Government with information on how trusts are being used, particularly with the introduction of the new 39% tax rate. As part of their annual income tax return, trustees will now have to disclose:

  • Financial accounting information, including profit and loss statements and
  • balance sheet items
  • Loans to related parties
  • Information on distributions and settlements made during the income year
  • Names and details of settlors from prior years
  • Names and details of each person who, under a trust deed, has the power to appoint/dismiss a trustee, to add/remove a beneficiary, or to amend the trust deed.

The 39% tax rate and beneficiary income from a trust

If you receive beneficiary income from a trust, let us know if you’d like to know more about your tax position.

The 39% tax rate and property or shares

If you are looking to purchase assets such as property or shares, or already have such investments, it would be prudent to assess your overall investment strategy so that it meets your commercial and personal goals, including your tax profile. Such investments are able to be held in companies or a trust, which have tax rates of 28% and 33% respectively, however on distribution to individuals in most cases the individual’s tax rate will effectively be applied. A strong note of caution – the main reason for any restructuring should not be due to any perceived tax benefits arising out of the restructure. Any restructuring should be focused on achieving key objectives such as successful commercial, risk, succession, and asset protection outcomes. We can review and assist you with planning to meet your objectives.

The 39% tax rate and superannuation contribution tax

Time to check whether you have employees whose Employer Superannuation Contribution Tax (ESCT) and Retirement Savings Contribution Tax (RSCT) rate threshold exceeds $216,000. The tax rate for these have risen to 39% (as of 1 April 2021).

The 39% tax rate and fringe benefit tax

A new Fringe Benefit Tax (FBT) rate of 63.93% will apply for all-inclusive pay above $129,681 and the single rate and pooling of non-attributed fringe benefit calculations. The 42.86% rate for non-attributed benefits will no longer apply. Talk to us about your current FBT profile and we can review it together.

The 39% tax rate and additional employment income

The tax change applies to all employment income over $180,000 a year, including bonuses, back pay, redundancy, and retirement payments. As an employer, take account of when additional remuneration to employees may affect their tax obligations and make sure tax is deducted correctly.

The 39% tax rate and RWT and RLWT

  • If you earn interest, this will be taxed at 39% (RWT) from 1 October 2021.
  • If you’re selling property covered by the bright-line test, residential land withholding tax (RLWT) will increase from 1 April 2021 to 39% (except where the vendor is a company).

Getting back to business

Getting back to business

It goes without saying that change has been a theme of late. Much of the change we’ve experienced has been out of our control. However, if we focus on what we can control, such as our response to change, we can regain some control and plan to maximise outcomes.

Five things within your control that will have the biggest impact on your business:

1. Working on your business, not just in it.
It’s hard stepping back from your operational role. Many of us have been in ’crisis mode’ for an extended period – running on adrenaline and coffee… but it’s still essential to set aside time to focus on your plan and review it regularly. After all, working hard will only pay off if we’re working on the right things. Block out two hours each week to step out of your business and ensure your plan is executed. If this is something you struggle with, ask someone to hold you accountable.

2. Your product/service mix.
It’s likely you’ve already made changes to your product or service offering. This may have happened under pressure and without a proper plan. Take time to thoroughly review your offering. Which products or services have the highest margins? Which products or services haven’t been performing well? Are there new products or services you could introduce which complement your current offering? Do you need to review your pricing?

3. Marketing and communication.
Have you updated your Marketing Plan to reflect changes to your business operations? Clearly communicating with customers and prospects is essential in these times as they need to know when you’re open, that you’re taking their health and safety seriously, and any changes to your offering. You also want to be front of mind as customers look to support businesses.

4. Human resources.
It’s likely that your human resources department took a hit over the last year. While government support helped save some jobs, for some businesses, they had no choice but to reduce the size of their team. Have you spent time reviewing your organisation structure to identify resourcing gaps and areas where you’re over-resourced? You must ensure your team is the right size for your business with the right people on board.

5. Your finance, profitability and cashflow.
You may feel this part is out of your control, however, there are steps you can take to regain control of your finances. If you haven’t already, revise your personal budget and identify areas you could reduce your spending. Then update your business budget, ideally, you’ll review and update this monthly. If you’re struggling with cashflow, we can help you identify improvements you can make to your processes to manage your cashflow.

In Covid times there’s a lot you can control and it’s crucial for morale and progress that we focus on these things to get our business in the best possible shape. Even if your business stayed open during lockdown or you’ve been back to business for a while, use these simple strategies for continuous improvement.

Success in 2021 will look very different from previous years. What does it look like for you and your business? If you need help developing a plan, improving your profitability and cashflow, or just want someone to bounce ideas off, get in touch.

“Success is not final, failure is not fatal: it is the courage to continue that counts.” – Winston Churchill

6 things you should know before filing your EOY tax – post COVID-19

6 things you should know before filing your EOY tax – post COVID-19

Ticking items off your end-of-year tax checklist this month?

Make sure you consider the business support and tax relief measures introduced because of COVID-19 so you can sail as smoothly as possible into the new financial year.

There are some things you may not be used to thinking about when you prep for end of tax year:

  1. New rules to keep cash flowing – If money is a bit tight as the financial year draws to a close, here are four tax measures focused on providing and enabling cashflow that you might like to consider:
    • The tax loss carry-back rule, which means if you’re expecting a tax loss for the year ended 31 March 2021, you might be eligible for a refund of provisional tax previously paid for the 2020 year.
    • If your cashflow has been significantly impacted by the economic effects of COVID-19, you may be able to apply for relief from use of money interest and penalties, or enter into an instalment arrangement for payments due to Inland Revenue. Inland Revenue’s ability to remit use of money interest in such circumstances applies to tax payments due up until 25 March 2022.
    • Keeping an eye on tax losses, as the Government have announced plans to introduce a same or similar business test that allows tax losses to be carried forward. This will become useful if you’re wanting to raise capital for your business in the future.
    • Consider the Small Business Cashflow (Loan) Scheme being offered by the Government through Inland Revenue where certain conditions are met. This provides loans of up to $10,000 (dependent on the number of employees) with an interest rate of 3%, with no interest applying if the loan is repaid within 2 years.
  2. Asset threshold lowering – Put aside time to review your asset expenditure. Identify any assets (valued up to $5,000) that you need and buy them before 17 March 2021. This way, you’ll be able to claim an immediate deduction for these assets under the low-value asset write-off as the threshold drops from $5,000 to $1,000 on 17 March 2021. The temporary $5,000 threshold was a concession as a result of the COVID-19 relief measures introduced, and from the 17 March 2021 the $1,000 threshold is an increase from the $500 amount that was previously in place prior to 2020. It’s also a good time to ensure records are up to date on any commercial buildings as depreciation for tax purposes is available on commercial buildings for the year ended 31 March 2021.
  3. Earn over $180,000 a year? – If you’re one of the 75,000 Kiwis impacted by the new 39% tax rate, review your business and investment structure with us before 1 April 2021. The marginal tax change, rushed through last December to help pay for the COVID-19 recovery, applies to all employment income over $180,000 a year. It includes extra pay earned in the course of employment, such as bonuses, back pay, redundancy, and retirement payments. It is timely to consider such payments in relation to the 2021 year, as well as reviewing dividend payments.
  4. Keeping subsidy records crucial – While COVID-19 related wage and leave subsidies are non-taxable, keep accurate records of any subsidy you received and which staff member it was paid to, in case the Ministry of Social Development asks to review your records down the track.
  5. R&D loss tax credit – Start-up companies are able to cash-out their tax losses arising from eligible research and development (R&D) expenditure, and avoid carrying the losses through to the next income year. The credit can only be for:
    • eligible R&D business expenditure
    • up to 28% of your tax losses from R&D activity
    • companies that are tax residents in New Zealand
    • dates on or after 1 April 2015. The rules around R&D expenditure are detailed and eligible R&D expenditure will require approval from Inland Revenue. So if you’re looking to claim under these rules, you will need to start looking at this sooner rather than later, and keeping records of such expenditure as it occurs.
  6. Staff reimbursements and allowances – Make sure you have a good record of any reimbursements and allowances paid to employees for expenditures – generally and in account of new COVID-19 related Working from Home (WFM) tax changes. Remember:
    • For telecommunications devices and plans, staff reimbursements are tax exempt up to $5 per week. If reimbursement is above this amount, the exempt amount is 25% if the device or plan is used partly, 75% if used mainly, or 100% if used exclusively for employment purposes.
    • WFH payments claimed between 17 March and 17 September 2021 allow an additional $15 per week, per employee, to be exempt income for other WFH expenditure.
    • A tax-exempt payment for use of furniture or equipment when WFH to reimburse the depreciation of the item. The payment will typically be for the cost of the asset and the payment will still be deductible to the employer. Note the low-value asset threshold of $5,000 applying between 17 March 2020 to 17 March 2021 will apply here.

The low-value asset threshold (of $5,000) for depreciation ends on March 16th

The low-value asset threshold (of $5,000) for depreciation ends on March 16th

The temporary increase to $5,000 for the low-value asset threshold for depreciation ends March 16th. For assets purchased on or after 17 March 2021, the new threshold will be permanently set at $1,000. Talk to us for more information.

The temporary increase to $5,000 for the low-value asset threshold for depreciation ends March 16th

This means if you buy something now, you could write off the whole amount against your taxable income this year.

Depreciation spreads the cost of assets that you buy for your business, by claiming a deduction from the IRD in your tax return.

In March 2020, the NZ Government introduced legislation to temporarily raise the threshold for depreciation on low-value assets from $500 to $5,000. The aim of this change was to stimulate the economy during the Covid pandemic by encouraging people to invest in their businesses.

The change to the $5,000 threshold ends 16 March 2021

What does this mean for you?

  • Businesses (including landlords) can deduct the entire cost of an item (under $5,000) in the year it was purchased, instead of spreading the cost over the life of the asset.
  • The distinct asset must be bought between 17th March 2020 and 16th March 2021.

The raised threshold change is only available until March 16th 2021. For assets purchased on or after 17 March 2021, the new threshold will be permanently set at $1,000.

In order to claim you will need a proof of purchase to support your records. Note that there are some terms and conditions in the rule which apply to the threshold:

  • If you bought multiple assets at the same time from the same supplier and it cost $5,000.00 (noting that it has the same depreciation rate), the threshold applies across all the assets acquired.
  • The “cost” pertains to GST exclusive for a GST registered and GST inclusive for a non GST registered.
  • If the asset is being acquired in the form or part of another asset, the deduction is immediately not applicable.

Contact us for further information.

The minimum wage increases on April 1st 2021

The minimum wage increases on April 1st 2021

From April 1 2021, the adult mimimum wage will increase from the current rate of $18.90 per hour to $20 per hour.

There are 3 types of minimum wage — adult, starting-out and training.

The adult minimum wage – applies to employees aged 16 years or older.

The starting out minimum wage – applies to workers who are:

  • 16 and 17 years old and have been with their current employer for less than 6 months
  • 18 and 19 years old:
    • have been paid a benefit for 6 months or more
    • haven’t worked for 1 employer for longer than 6 months since being on a benefit, and
    • have been with their current employer for less than 6 months
  • 16 to 19-year-olds whose employment agreement requires them to do at least 40 credits a year of industry training.

The training minimum wage – applies to workers who:

  • are 20 years or older
  • under their employment agreement, have to do at least 60 credits a year of industry training.

The training and starting-out minimum wages will also both increase. The new rate from April 1 will be $16.00 per hour, remaining at 80% of the adult minimum wage. This is a rise from the current minimum rate of $15.12 per hour.

Talk to us about how this will impact your business.

Should you buy or lease your business assets?

Should you buy or lease your business assets?

Should you buy or lease your new equipment? We’ll review your current financial position, cashflow and cost base to decide whether buying or leasing is the right thing for the business.

There are certain items of equipment, machinery and hardware that are essential to the operation of your business – whether it’s the delivery van you use to run your home-delivery food service, or the high-end digital printer you use to run your print business.

But when a critical business asset is required, should you buy this item outright, or should you lease the item and pay for it in handy monthly instalments?

To buy or to lease? That is the question

Buying new pieces of business equipment, plant, machinery or vehicles can be an expensive investment. So, depending on your financial situation, it’s important to weigh up the pros and cons of buying, or opting for a leasing option.

First of all, let’s look at why you might decide to buy the item…

Buying: the pros and cons:

  • Pro: It’s a tangible asset – when you buy an item, you own the item outright and it will appear on your balance sheet as one your business assets. As such, by owning these assets outright you increase the perceived capital and value of your business. You can also claim the cost of the asset against your capital allowance for tax purposes.
  • Pro: It’s yours for the life of the asset – once you own the item, you have full use of the equipment for the duration of the life of the asset. Your use of the asset isn’t reliant on you being able to keep up regular lease payments, and if your financial circumstances change then you can sell the asset to free up the capital.
  • Con: It’s an expensive outlay – paying for the item up-front is a large outlay for the business and will require you having the cash to cover this cost. Spending a large lump sum in this way may take cash away from other areas of the business, so you need to be 100% sure that this purchase is the right decision and a sound investment.
  • Con: You may require extra funding – if you don’t have the liquid cash available to buy the item outright, you may need to take out a loan. Asset finance is available from funding providers, but does tie you into a loan agreement that will add to your liabilities as a business – reducing your worth on the balance sheet.

Leasing: the pros and cons:

  • Pro: Leasing has a cheaper entry point – if the item you need to purchase has a large price tag, leasing allows you to make use of the asset without the cost of buying it in full. For startups and smaller businesses with minimal capital behind them, this can make leasing a very attractive option. You may not own the asset, but you can make use of it – and this may be the difference between the success or failure of your business.
  • Pro: You can spread the cost – there is still an associated cost of leasing, but you can spread the cost over a longer period, making it easier to find the necessary liquid cash to meet your lease payments. With this money saved, you can then invest in other areas of the business, helping you to expand, grow and bring in more customers and revenue.
  • Con: You don’t own the asset – there are different types of leasing agreement. Under a capital lease, you do own the asset (once you’ve paid if off). But if you opt for an operating lease, this is a more short-term lease and you won’t own the asset at the end of the contract. Ownership does have its advantages (including being able to sell off the asset if required) so it’s important to consider what kind of leasing agreement you’re entering into and what the advantages/disadvantages may be.
  • Con: You may pay more in the long run – most leasing agreements will attract additional costs and interest on your agreement, so you may well end up paying more than the market price for your asset in the long term. If you can cope with the higher cost, this is fine, but bear in mind that buying outright may have offered greater value.
  • Con: You may lose the use of the asset – if you can’t keep up your lease payments (due to poor cashflow for example) then the owner of the lease agreement may recall the asset. If this item is crucial to your business model, losing this key asset can have a profound impact on your ability to operate. In this respect, leasing is a more risky prospect, but also an easier option for businesses with less cash to splash.

Talk to us about whether buying or leasing is the best way forward

Whether you opt to buy or lease your equipment isn’t always a straightforward decision to make – so it’s a good idea to consult with your accountant early on in the decision-making process.

We’ll help you review your current financial position, assess your available cashflow and look at your regular cost base to decide whether buying or leasing is the right thing for the business.

Is your business ready for hybrid working?

Is your business ready for hybrid working?

The Covid pandemic has changed the way we work and ushered in a new era of hybrid working – but is your business ready and able to offer this mix of on-site, off-site and remote working?

When businesses were forced to close down their physical offices and workspaces, this brought technology to the fore. We’ve seen an increased use of remote working, video technologies and cloud-based business solutions – and people have got used to this ‘working from home’ ethic.

Hybrid working aims to take the best elements of remote working, and to mix these up with the undeniable advantages of working together as an in-person team. If your business is going to embrace this approach then it’s likely that employees will be spending some time in the office, some time at home and some time out and about, or at client’s worksite – but to do this, your company is going to need to provide the right environment for a hybrid approach.

The key question, then, is whether your business is ready to embrace hybrid working…

Setting the foundations for hybrid working

Any change in work patterns requires a certain amount of innovation from your business, plus the basic requirements of being able to deliver both remote and in-person working.

To get your business ready for hybrid working, it’s crucial to set the right foundations, and this means planning ahead, and keeping an open mind to the benefits of this new approach.

To prepare for a hybrid approach, your business must:

  • Have the necessary cloud infrastructure – if your employees are going to work from home, or while out on the road, you need your key systems to be in the cloud. Old-school applications on an office-based server are just not going to cut it for hybrid working. Cloud-based accounting, project management, CRM and workflow tools give you the flexibility to work from any location, with one ‘point of truth’ in the cloud for all your customer information and business data.
  • Have clear systems and processes – when people are working in different locations, at different times, it’s important to have some consistency around how the work is done. To achieve this you need well-defined operational systems, where each task has a pre-agreed process – so the whole team knows when, how and where to carry out their day-to-day work, record notes or raise expenses and bills etc.
  • Trust your employees to self-manage – when employees are no longer based in the office five days per week, it becomes more difficult to have management oversight. With some people home-working and some out at other locations, you need to place more trust in their ability to self-manage and work to a high standard. Increasing trust and reducing micro-management is key to making a hybrid approach work for the team.
  • Have performance reporting in place – trusting people to work hard is a given, but you do also need to know if the business is remaining productive. Having some form of performance reporting in place is a good idea, so you can review areas like productivity, staff attendance, sales targets and revenues generated etc.
  • Empower people to get their jobs done – when you can’t all be in the office for the traditional ‘stand up team meeting’ it can be hard to build team spirit and keep your employees motivated. Try having regular Zoom/Microsoft Teams huddles, where teams come together to talk through the work for the week, and can raise any issues. And also think about distance or in-person social events too, so people can let their hair down and enjoy being part of your business family.

Preparing for hybrid working

The companies that fully grasp the hybrid working opportunity will be more flexible, more scalable and ready to react to new challenges and changing environments. So, there’s real value in forging ahead with this new approach.

The dangers of discounting

The dangers of discounting

You might think that offering discounts is a great strategy to use when sales are falling. In reality, you’re likely to be more profitable by holding your price and accepting the reduction in sales volume than discounting a product.Let’s look at an example to show the difference in your gross profit if you discount your selling price by 10% compared to holding the price at $100 and accepting a 10% reduction in sales volume.

If sales are currently at 10,000 per annum at $100 per unit, your sales will be $1,000,000. With costs of $60 per unit, your gross profit is $400,000.Dropping the selling price by 10% might mean sales remain constant at 10,000 with a selling price of $90 per unit, so you’ll achieve $900,000 in sales. Costs remain at $60 per unit, so your gross profit will be $300,000.

If you were to accept the 10% drop in sales but hold your price at $100 per unit, your sales revenue will still be $900,000, but you’ll only have to pay for 9,000 units, so your gross profit will be $360,000.

In other words, holding your price and accepting the drop in sales results in a reduction in gross profit of $40,000 compared to a $100,000 reduction if you offered a 10% discount.

If you look at it another way, you can work out the increase in sales needed to maintain your original $400,000 gross profit if you offer a 10% discount. To calculate the increase in sales required, first calculate the gross profit for each unit: $90 selling price – $60 cost per unit = $30 gross profit per unit. This gives us a gross profit percentage of 33.33% ($30 gross profit / $90 selling price * 100).

To calculate the required increase in sales, multiply the previous sales volume figure by the gross profit percentage. To maintain your $400,000 gross profit, you’ll have to sell 13,333 units (10,000 units * 133%).

Discounting is simply not the answer – it’s a race to the bottom! Look for other alternatives to respond to a drop in sales – starting with what you can do to delight your customers so they keep coming back!

“When you realise how much you’re worth, you’ll stop giving people discounts.” – Karen Salmansohn

If you’re experiencing a drop in sales, get in touch so we can work with you to identify the reasons for this and explore alternatives to offering a discount.