Payroll and Taxation Unit 2 PDF

PAYROLL AND TAXATION UNIT 2 WHAT IS NIS? NIS –National Insurance System. Compulsory Social Security Insurance. Both Employer & Employee Contributes respective to 16 Earnings Classes Protects Insured person against the Risk of Loss of Earnings and other contingencies WHAT IS NIS? A BRI...

PAYROLL AND TAXATION UNIT 2 WHAT IS NIS? NIS –National Insurance System. Compulsory Social Security Insurance. Both Employer & Employee Contributes respective to 16 Earnings Classes Protects Insured person against the Risk of Loss of Earnings and other contingencies WHAT IS NIS? A BRIEF HISTORY Established by Act No. 35 of 1971. Began operations on April 10th 1972. The NIBTT has a tripartite Board of Management. (Labour, Business, Government) Over 20,000 Employers Over 516,000 Employees contribute to the NI System Customer base of over 669,000 (inclusive of dependents) Serves over 160,000 beneficiaries Over 96,000 pensioners Asset base of $25.5 Billion Average contribution income of $4 Billion (2014) PRINCIPLES OF SOCIAL INSURANCE Social insurance is a public insurance program that provides protection against various economic risks (e.g., loss of income due to sickness, old age, or unemployment) and in which participation is compulsory. There are eight (8) underlying principles of Social Insurance. These principles are the foundation of the National Insurance System. PRINCIPLES OF SOCIAL INSURANCE THESE ARE: Universality -All persons who qualify as insured persons are covered under the NI Act without exception. Compulsion - No one who qualifies as an insured person is allowed to opt out of the system. Pooling of Risk- The risk and cost are spread out over a large number of persons thereby making the system affordable. Portability- Social Insurance is portable, following the worker from job to job. Wage Stop- This principle aims to cover a level of earnings that will guarantee a reasonable level of income replacement for the lower middle income earners. Loss of Earnings- Benefits are paid subject to loss of earnings. Economic Independence- Benefits form only a percentage of assumed earnings. Workers must not be provided with an incentive to stay away from the job. For the welfare of the country, all the skills and resources are required on the job to facilitate the task of national development. Redistribution- Income is distributed from high wage earners to low earners; from well to the sick; from the employed to the retired; from the living to the dependents of the dead. LIST OF BENEFITS Short term- Sickness, Funeral Grant, Maternity Benefit & Special Maternity Long Term- Retirement, Invalidity, Survivor’s Employment Injury- Medical Expenses, Disablement, Death Benefit REGISTRATION & OBLIGATIONS Registration is the process by which the NIBTT records specific data in respect of Employers and Employees and issues a unique Registration Number, which positively identifies one entity from another or one insured person from another. The registration process is the foundation of the service we provide. In addition to being a legal requirement, the registration process enables the NIBTT to expeditiously determine applications for benefit because it can – Establish and maintain a sound and accurate database of all employers and insured persons. Properly identify one entity or insured person from another. Maintain accurate and complete contribution records on each insured person. Note: With effect from January 7th 2008, the Board may reject or revoke the registration of any person or entity applying for registration as an employer where the registration is as a result of fraud, misrepresentation, or mistake. REGISTRATION Who is an Insurable Employee? A person who earns at least $200 per week under a ‘contract of services’, is considered to be in insurable employment and therefore eligible for coverage under the National Insurance Act (Chapter 32:01) Who is an Employer for the purpose of NIS? Any person or entity which employs an insurable employee WHO MUST BE REGISTERED? Every person or entity that employs at least one other person and pays that person at least $200.00 per week; or employs unpaid apprentices must be registered as an Employer within 14 days of employing his first employee/unpaid apprentice. Any employee who earns $200.00 or more per week. The contract of employment may be written or oral, expressed or implied. Paid and unpaid apprentices are also required to be registered. Anyone employed in a professional capacity on a full-time basis, for which a salary is paid. This includes a Doctor at a Hospital, a Priest, Pastor, Nun or domestic who receives a salary of $200.00 per week or more. Anyone employed as a Share Fisherman or Taxi Driver or Traveling Salesman, where a Contract allows for payment to be made on a share of earnings or profits. Anyone employed temporarily with a Firm, Business Organization, Government Department or Statutory Body (e.g. student during vacation periods $200.00 per week or more). Insurance Agents or Car Salesmen who work on a full time basis and are paid by commission on sales $200.00 per week or more. Foreign employees engaged in work in Trinidad & Tobago on a contract basis, or on Work Permits. WHO MAY NOT REGISTER? Persons who are employed and who earns less than $200.00 per week. This refers to persons entering the system on or after March 03, 2014. A person who is not a citizen of Trinidad and Tobago and who is exempt from Social Security Legislation by virtue of International Conventions governing Diplomatic and Consular Relations. A person employed by an International Organization of which Trinidad and Tobago is a member and who is covered by a Social Security System operated by that Organization. A person who has been granted exemption under the terms of a reciprocal social security agreement between that country and Trinidad and Tobago. TIME PERIODS FOR REGISTRATION Within 7 DAYS- All employees and unpaid apprentices must supply their employers with their NI Number 14 DAYS- Where the employee does not supply you with their NI Number, You must register them within 14 days of having employed them. 21 DAYS- Inform the employee about their Registration Status 28 DAYS- Employee must register themselves and inform employer of their number REGISTRATION OF EMPLOYEE/S The unregistered employee or unpaid apprentice is required to provide his employer with all personal particulars necessary for proper Registration by completing the Prescribed Form (NI4 Application to Register as an Employed Person) within seven (7) days of employment. All fields on the Prescribed Form NI4 should be completed. However, Registration can be effected, if the mandatory fields are completed. The employer must submit all Prescribed Forms (NI4 Application to Register as an employed Person) to the NIBTT Service Centre within fourteen (14) days of hiring the employee. Where the employee ceases work prior to completion of the Prescribed Form (NI 4), the employer will: -Complete the Form from his personnel records. Insert the note ‘Completed based on employers records’ at the top of the Form. Submit to the Service Centre for processing Upon being satisfied that the application for Registration of an employee or unpaid apprentice is in order the NIBTT shall deliver to the employer a N.I. Registration Card for delivery to the employee and or unpaid apprentice and a list of the Registration Number of each employee, or unpaid apprentice, to be retained and used by the employer in doing business with the Board. MULTIPLE EMPLOYMENT Where an employee has multiple employment all employers must pay contributions on behalf of the employee. Important: Contributions for all employees and unpaid apprentices, are due from the start of their employment, apprenticeship or probationary period. EMPLOYER OBLIGATIONS To register as an employer within 14 days of hiring your first employee; Where the employee did not provide you with a National Insurance Number within 7 days of employment you are required to register such employee and unpaid apprentice within 14 days of hiring him or her; To inform your employees within 21 days of hiring them whether or not you have registered them or not; to prepare accurate pay records in the appropriate format; To make appropriate National Insurance deductions from each of your employees earning at the time that payment of such earnings is made. Where the employee's portion of the contribution is not deducted at the time that the earnings are paid the employer is fully responsible for the combined contribution (employer and employee); To remit the combined contribution to the NIBTT Service Centre on or before the last day of the month; Ensure that the correct information relating to the contributions being paid and the employees to whom it relate are remitted to the NIBTT at the time that such contributions are being paid; EMPLOYER OBLIGATIONS To complete the employer section on all forms relating to insured persons in your employ; To provide insured persons, whose employment has been terminated, with a Termination Certificate that indicates the contributions paid to the NIBTT on their behalf. To inform the NIBTT immediately if any of the following are changed: The business address. The name or nature of the business. The owners or directors of the business. To inform the NIBTT immediately of the intended date of closure of the business and return the National Insurance Certificate of Registration. EMPLOYEES’ OBLIGATIONS Where an employee or unpaid apprentice is registered with the NIBTT, he must provide his employer with his N.I. Number within 7 days of employment. Where the employee or unpaid apprentice is not registered with the NIBTT, he must provide his employer with all personal particulars necessary for the proper completion of the registration form within 7 days of employment. The employee shall be responsible for the correctness of the particulars inserted on the application form. Where the employer fails to register the employee or unpaid apprentice within 21 days of employment and informs the employee or unpaid apprentice accordingly, such person will apply to the NIBTT for registration within 28 days of employment. Processing of the Application Upon being satisfied that the application for Registration of an employed person or unpaid apprentice is in order the NIBTT shall deliver to the employer a N.I. Registration Card, for deliver to the employee and or unpaid apprentice and a record of the Registration number of each employed person, or unpaid apprentice which is to be retained by the employer. Note: An employee (excluding a domestic or casual agricultural worker) or unpaid apprentice who fails to provide the employer with complete and correct information needed for registration or, who fails to apply for registration within 28 days of employment will be liable on summary conviction to a fine of $500.00. NATIONAL INSURANCE REGISTRATION CARDS A National Insurance Registration Card will be issued to the following insured persons: New Registrant – a person for whom registration has been completed. A person for whom Registration update has been completed upon data clean up. Replacement Card Applicant a person who has lost or damaged his card. Where the insured person has not been issued with a National Insurance Registration Card or where changes have been effected, a National Insurance Registration Card must be issued to the insured person at no cost to the insured. The N.I. Registration Card contains the following information: Name: National Insurance Number: Date of birth: STATUTORY DEDUCTIONS Statutory deductions are deductions that are compulsory according to the laws of the country. The must be deducted from each employee's salary and remitted to the relevant government authorities. Failure to do this will result in a penalty of fines. In Trinidad & Tobago there are three- income tax, national insurance & heath surcharge. WHAT ARE CONTRIBUTIONS? Weekly payments fixed in relation to wages/salaries of insured person Structured into 16 earning classes Effective September 5th2016, rates has been increased to 13.5% of the assumed average weekly earnings Payment of contribution is shared between the employer and employee (2/3 employer; 1/3 employee) The employer is responsible for remitting the total contribution to NIBTT An employer who does not follow the law, commits an offence and is liable to be prosecuted and fined WHO PAYS CONTRIBUTIONS? Payment of the contribution is shared between the employer and employee in the ratio of approximately 2:1 in accordance to the rate set out in the Act. The employer is statutorily obligated to deduct the employee’s share no later than on the date of payment of salaries/wages. Notwithstanding the cost sharing described, the EMPLOYER is responsible for remitting the total contribution to the NIBTT. Any employer who fails to pay any contributions, or deducts part of the employer’s contribution from the employee’s wages, or contravenes any other requirement of the law, commits an offence and can be prosecuted and fined. In addition, the employer is obligated to maintain pay records for each of his employees including the unpaid apprentice and domestic. Such records must include the following particulars of each employee: Full name National Insurance Number Salary/wages and the period to which such salary/wage relates. The value of the contribution paid for each week of the period to which the salary/wage relates The total contribution paid for the period to which the salary/wage relates CONTRIBUTION RATE SHEET- 2016 HOW TO DETERMINE THE DEDUCTION AMOUNT? Three key factors in determining the deduction amount: Earnings (Monthly/ Weekly) Number of Mondays in the month (Generally, 4 or 5 Mondays in a month) Age of person: for employed persons over 65 years and under 16 years and employees aged 60 years to under 65 years who have retired, and have started to receive their Retirement Benefit and subsequently returned to work, no deduction is made from the employee. Rather the employer alone makes contributions, according to CLASS Z of rate table. For All other persons not included in the areas above, Employee AND Employer Contributions will apply. EXCEPTIONS The following are instances in which no deductions are made from the employees wages/salaries and in which the employer only, pays a contribution: Employees under 16 and over 65 years. Employees aged 60 years to under 65 years who have retired, and have started to receive their Retirement Benefit and subsequently returned to work. DEFINING EARNINGS For National Insurance purposes, earnings include more than the basic wage or salary. Earnings also include: Acting Allowances Overtime payments Cost of living allowances Commission on Sales Production or efficiency bonuses Danger or dirt money Payments for standby duty Allowances for dependents Other items SAMPLE EXAMPLES Using the NI rate tables find the Employer weekly contribution and Employee weekly contribution for following , (Assumption: All employees are paid and are between the ages of 16 –65 years) : 1. 1.Monthly Salary of $2,300.00 – 2. Monthly Salary of $9,000.00 – 3. Monthly Salary of $10,500.00 – 4. Weekly Salary of $1,500.00 – 5. Weekly Salary of $2,380.00 – 6. Weekly Salary of $4,500.00 – SAMPLE EXAMPLES- ANSWERS Using the NI rate tables find the Employer weekly contribution and Employee weekly contribution for following , (Assumption: All employees are paid and are between the ages of 16 –65 years) : 1. 1.Monthly Salary of $2,300.00 – 2. Monthly Salary of $9,000.00 – 3. Monthly Salary of $10,500.00 – 4. Weekly Salary of $1,500.00 – 5. Weekly Salary of $2,380.00 – 6. Weekly Salary of $4,500.00 – RESIDENTS WORKING ABROAD If you have an employee who is in insurable employment and that employee is required to work abroad for you, then, providing that: The employee is ordinarily resident in Trinidad and Tobago; and You maintain a place of business in Trinidad and Tobago BENEFIT CREDITS No National Insurance contributions are due while your employees are receiving the short term benefits from the NIBTT i.e. Sickness, Maternity or Injury Benefit. The contributions due over these benefit periods are met by the National Insurance Board. CONTRIBUTIONS HELD IN STATUTORY TRUST Pursuant to Section 39.A of the National Insurance Act, an employer holds in trust for the NIBTT the total value of contributions due. These contributions must be kept separate and apart from the assets of the employer and must not be subject to attachment in respect of any of the employers debts or liabilities and must form no part of the assets of the employer in the event of liquidation, assignment or bankruptcy of the employer or his business. WHEN ARE CONTRIBUTIONS DUE? Contributions are due in respect of each week or part of a week that an employee works with an employer. This includes periods of apprenticeship, probation or try-outs. Where salaries are paid in respect of a fortnight or calendar month, the number of contributions due are based on the number of Mondays in the said fortnight or month. Contributions are to be deducted no later than when the payment of such earnings is made. Contributions for a month must be paid on or before the last day of the month. However, there is a grace period up to the 15th day of the following month. HOW TO REQUEST YOUR CONTRIBUTION STATEMENTS? Every individual making national insurance contributions should ensure their contributions are up to date. This can be done by filling out and submitting the NI183 - Request for Contributions Statement Form to the nearest service centre. In addition, the NI165 form should be filled out to facilitate the updating of your personal information. Statements are generated for distribution within one day. However, should a request for alternative evidence be made by the National Insurance Board, a longer waiting period is expected before an updated statement is generated. FAILURE TO PAY CONTRIBUTIONS –FINES Failure to pay contributions in respect of an employee will cause the employer to be liable to a fine of $4,000.00 and six months imprisonment. A further fine of $100.00 per employee for everyday that the contributions remain outstanding can be applied. PAYMENTS Method of Payment Your contributions are payable in Cash, Certified Cheque or Manager’s Cheque at the Service Centre in your district. Personal Cheques (including company cheques) will be accepted up to the Limit of a Valid Bank Card. Payment must be submitted with the relevant forms. RETROACTIVE SALARY INCREASES Where there is a retroactive increase in earnings, e.g., salary, overtime, bonus, the adjustment of contribution class should be made only from the week/fortnight/month in which the increase was paid. MULTIPLE EMPLOYMENT Where an employee has multiple employment all employers must pay contributions on behalf of the employee. With effect from March 1st 2004 the law states: - “Where an employee is employed by more than one person or where his earnings are paid jointly by more than one person during any contribution year in which a contribution is payable or where such employee works under the control and management of some person other than his immediate employer, the NIBTT shall total all contributions paid for the employee in that year and place the employee in the highest earnings class that such total contributions would permit for the number of weeks worked.” TERMINATION OF EMPLOYMENT Employers are required to issue their employee with a Termination Certificate within thirty (30) days of termination of employment. This certificate contains the following information. The employee’s total insurable earnings for the contribution year. The total amount of contributions deducted from those wages. The total amount of contributions paid to the NIBTT. The number of contribution weeks covered by those contributions. The employer must forward a copy of this certificate to the NIBTT on the same day it is issued to the employee. Failure to issue the certificate to the employee or failure to forward a copy of the certificate to the NIBTT attracts a fine of $4,000.00 and imprisonment for 6 months on summary conviction. TAX RELIEF The employer’s share of the contributions that is paid on behalf of their employees is considered an operating expense and is tax deductible in its entirety. The employee claims 70% of his share of the contribution as a tax relief. PENALTIES AND INTEREST Non-Payment of Contributions Where payment is not made by the 15th of the month following the month for which contributions are due a penalty equivalent to 25% of the sum due will be charged to the employer. e.g. contributions due for the month of June 2010 must be paid by July 15th 2010. Payment after this date will attract the penalty of 25%. How will penalties be applied? If contributions due for any month are not paid by the 15th of the following month a 25% penalty will apply from the 16th. If contributions totaling $1000.00 are due for January 2010 have not been paid by February 15th 2010 a penalty of 25% will apply from February 16, 2010. Therefore, contributions and penalties totaling $1250.00 will be due from February 16, 2010. WHEN WILL INTEREST APPLY? If contributions and penalties have not been paid by the 15th of the second month, 15% interest will apply on the total sum. Using the above example, if contributions and penalties totaling $1,250.00 have not been paid by March 15, 2010 an interest rate of 15% (pro-rated) will apply from March 16, 2010 until the sum is paid. HOW WILL INTEREST BE CALCULATED? Interest is calculated as follows: Total of contributions and penalties X 15 X # of days total sum remained unpaid after the 15th of the second month divided by 36500. Using the above example, if payments are made on March 20, 2010, interest will be calculated as follows:(1250 X 15 X 5) = 2.5736500 Interest of $2.57 must therefore be added to contributions and penalties ($1250.00) for a total remittance of $1252.57. SAMPLE EXAMPLE The monthly salary of an employee is $7,500.00. Assuming the employee is between the age to 16-65 years and there are 5 Mondays for the month in question. Determine the NI contribution that will be deducted in the calculation of his monthly take home pay. 1. We first look at the rate table column –Monthly Earnings 2. We look for the row that the $7,500.00 will fall into: Earnings Class X – range $7,410 - $8,276.99 3. Moving along the row to columns Employee, Employer and Total WEEKLY Contributions: Employee Contribution – $79.60 per week -this will be the deduction from the employee’s salary. Employer Contribution – $159.20 per week Total Contribution – $238.80 per week 4. For the month in question, NIS deducted from the employee will be: $79.60 x 5 weeks = $398.00– This will be the employee’s contribution SAMPLE EXAMPLE (CON’T) How much will the employer be contributing for this employee? 1. Employer’s Weekly contribution in the relevant category: $159.20 x 5 wks= $796.00– This is the EMPLOYER’s monthly contribution What is the TOTAL amount to be remitted to the Government Body in respect of this employee? 1. We need to add both the Employee and Employer amounts to determine the Total Amount Employee’s Contribution – $398.00 plus Employer’s Contribution – $796.00 Total Amount of remittance – $1,194.00 for the month. Payment via Check: Total weekly contribution: $238.80 x 5 weeks = $1,194.00 EXERCISE- HOME WORK For a 68 year old person who is not retired with a monthly salary of $9,000.00 1. How much NIS will be deducted from his monthly salary? 2. In the same situation above, how much will be the Total Remittance to the NIB? 3. Assuming we are calculating his pay for the month of April 2024, a) What will be the NIS Deduction from his salary? b) What will be the employer’s expense? c) What will be the total amount remitted to NIB?