Setting up a subcontractor

ANSWER ID:32758

This support note describes how to set up payment of wages for a subcontractor. It involves creating a new pay code, setting the contractor up as an employee, then assigning the new pay code to them.

Let's take you through it.

1. Create a new CONTRACT pay code

Go to the Maintenance command centre and click Maintain Pay Codes.
Click New.
Set up a Taxable Allowance pay code called CONTRACT as shown below.
Click OK. A message will be displayed asking whether these payments should be included in the Annual Leave and Holiday Pay calculations.
Click NO to the message.
The new paycode will now be in the list of pay codes. Click the CONTRACT pay code and ensure the General tab is selected.
Click the GST pay code and ensure the Default Pay Rate is set to 0.15000 as shown below.

2. Set up a new employee record

Go to the Maintenance command centre and click Maintain Employees.
Click New and create a new employee.
Give them the tax code WT with the appropriate rate, for example 20%. See our example below.

You can't change an existing employee to the WT tax code part way through the year. You must instead add new employees.
Click the Pay Defaults/Totals tab.
Add the CONTRACT and GST pay codes as shown below.

3. Process the subcontractor's pay

Go to the Prepare Pays command centre and click Enter Pays.
Select the contractor and enter the required quantity and rate against the CONTRACT pay code so the total is the net amount before GST.

Example:

Gross amount on contractors invoice $5000.00 + $750.00 GST

PAYE (WT rate) (This is calculated by the payroll) -$1000.00

Net=$4000.00

GST Added back from GST Pay Code in Payroll $750.00

Amount paid to subcontractor $4750.00

What if I need to create a Buyer Created Tax Invoice?

If you need to produce a Buyer Created Tax Invoice for the subcontractor, please contact our Tech Support team and they'll be happy to help (call 0508 328 283).

What if I want the GST to post to a separate journal in my MYOB accounting software?

Set up a department called GST and allocate the GST Input Tax Adjustment ledger code to it.
Go into Maintain Pay Codes to the GST pay code, click the Other tab and set the department to the GST department. This will then increase your purchase's GST which in turn decreases your GST payment to the IRD.

For more information see Integrating Payroll with your accounting software.