Your Guide to NZ Payroll
Running payroll In New Zealand can be complex. That’s why we’ve put together this comprehensive guide – aimed at both first-time employers who’ve never run payroll before, and old hands who need a refresher.
If you’re a first-time employer then congratulations – you’re about to start on a great adventure. We can’t tell you how to run your business, but we can give you a few useful tips to make it easy to pay your staff.
Forms to complete
Before beginning to process your first pay, there are a few documents you need to fill out.
Register as an employer with the Inland Revenue Department (IRD).
- This is easy to do using IRD’s online portal or the IR334 form – you’ll need an IRD number to get started and your business industry code. It’s extremely important to register as an employer – you may be fined by the IRD if you fail to do so.
Get your employees to fill in an IR330 form to determine their tax code.
- Once you know their code you can work out how much PAYE you need to deduct and whether they need to make student loan repayments.
Use the KS2 form to automatically enrol your employees in KiwiSaver if they don’t already belong.
- Every New Zealand citizen or permanent resident aged 18 to 64 must automatically be enrolled in KiwiSaver – though they can choose to opt out. You should also give them a KiwiSaver information pack to explain the scheme.
- There are at least 30 KiwiSaver providers and your employee can choose to belong to any one of those schemes. They can also change schemes at any time.
If you plan to use a PAYE intermediary such as Thankyou Payroll, you’ll need to complete an IR920 form.
- This form gives authority for your chosen PAYE intermediary to engage with IRD on your behalf. Fill it out and return it to your PAYE intermediary, not IRD.
Payroll software vs PAYE intermediary
How you run your payroll is up to you – some employers still do the whole thing using an Excel spreadsheet. But there are two ways you can make the process easier, by:
- using payroll software that has been developed so that you – or another staff member or an accountant – can manage your payroll in-house, and
- using a PAYE intermediary which provides all your payroll services and supports your IRD compliance. New Zealand has a handful PAYE Intermediaries – including us, Thankyou Payroll.
Payroll Software is essentially a digital toolbox for business owners to perform their payroll in-house. It will calculate an employee’s pay and leave entitlements based on the hours they have worked – entered by the employer. On its own, payroll software is well suited to employers who want oversight across every step of the payroll process. It grants you full responsibility for employment information submissions, tax payments and payroll queries.
A PAYE intermediary takes your payroll services one step further by engaging with IRD on your behalf and assisting you to fulfil your legal obligations as an employer.
These services include:
- filing your employee information forms within two working days,
- paying IRD the deductions made from your employees’ pay each month, and
- resolving queries with IRD.
PAYE Intermediaries can be payroll software providers, accountants or tax agents.
Employer payroll requirements and responsibilities
As an employer, you have a number of payroll requirements and responsibilities.
Minimum employment rights
You must provide a written employment agreement to all of your employees. This is an essential document for payroll as it states their employment type, hourly wage/salary, leave entitlements and much more.
Staff must be paid the minimum wage (or more) at agreed intervals – most employers opt for weekly or fortnightly payments.
Legally, you’re required to pay your staff in cash, but in practice most employees prefer to have a direct credit made into their bank account.
You can find out more about the full range of employment rights and responsibilities from Employment New Zealand.
As an employer, you’re responsible for making a number of deductions from your employees’ pay including:
- income tax (PAYE),
- KiwiSaver contributions (if they’re a member of KiwiSaver),
- child support payments (if they owe child support), and
- student loan payments (if they have a student loan).
You must deduct these sums before you make a payment into your employee’s bank account. If you use payroll software or a PAYE intermediary, these deductions will automatically be calculated.
These deductions must then be sent to the Inland Revenue (IRD). You send these either once a month or twice a month, depending on the size of your business:
- if your gross annual PAYE (including ESCT) is less than $500,000 you must pay the IRD by the 20th of every month, or
- if your annual gross PAYE (including ESCT) is more than $500,000 you must pay the IRD by the 5th and the 20th of each month.
If you’re using a PAYE intermediary, they will make these payments on your behalf.
Filing payroll information with IRD
Each time you pay an employee, you must file an Employee Information Form, which lets IRD know:
- PAYE payments,
- KiwiSaver payments,
- student loan repayments,
- payroll giving donations and tax rebates,
- any other deductions,
- ESCT (employer superannuation contribution tax),
- the pay period start and end dates,
- the pay frequency,
- the payday date, and
- new and departing employees.
All employers, regardless of their business size, must file their employees’ pay information to the IRD within 2 days of every payday. If you pay your employees weekly, that means they’ll have to file the information to IRD every week.
Electronic filing is compulsory for all employers whose annual PAYE and ESCT deductions (combined) are more than $50,000 a year. A myIR account is required to do electronic payday filing.
Paper filing is only available to employers whose annual PAYE and ESCT deductions total less than $50,000 a year. If they chose to do paper filing, they can either:
- file twice a month (on the 15th and the last day of the month), or
- file within 10 working days of payday.
If you use a PAYE intermediary – they will capture and file this information automatically. This helps reduce your interactions with IRD.
Payroll record keeping
Employers are legally required to keep their payroll records for 7 years – this includes information about employees who no longer work for you. The information you must keep includes:
- wage and time records,
- holiday and leave history,
- deductions such as; PAYE, Kiwisaver and student loans,
- tax code declarations, and
- full personal records for current and past employees.
Using a cloud-based payroll software provider means that this information will be stored online and can be accessed from any device. You won’t need to worry about keeping paper copies or electronic files.
When setting up your payroll for the first time you’ll need to decide:
- How frequently do you want to pay your employees?
- Weekly, fortnightly and monthly are the most common options.
- What day do you want to pay your employees?
- You can pick any pay date allowed by your payroll software. It’s a good idea to consider your business’ cash flow patterns and the resources you have available to process your payroll before locking in a fixed pay day.
Each successive pay will then follow the cadence set by your pay cycle and pay date. These details should be documented in your employment agreements.
Calculating your employee’s pay
There are a number of different payments an employee can be paid, including:
- wages (hourly rate of work),
- salary (fixed annual amount),
- penal rates,
- piece rates,
- incentives, and
- productivity payments.
These types of payments can be used in conjunction with each other. This is one of the many complexities of payroll – as each payment type would need to be displayed separately on the employee’s payslip.
It’s recommended that you try to keep your employee’s pay as simple as possible from the outset . However, if these payment structures have already been set up and agreed to in the employment agreement – the employee must agree to any changes, in writing.
Timesheets are essential to accurately record how many hours each employee has worked on a given day – and what leave they’ve taken in a set week. You must break your timesheet down by day – otherwise it is almost impossible to accurately calculate annual holidays in compliance with the Holidays Act 2003.
It’s up to you what kind of timesheets you use. Possibilities include:
- having a book where each employee records their hours,
- issuing staff with individual timesheets (there are plenty of templates available to download online),
- getting your staff to email their hours to you and entering them into your payroll software, or
- setting up an online system so that staff can enter their hours into it directly.
Whatever system you choose it’s important to stay on top of this process so that you run your payroll compliantly.
As an employer, you’re responsible for making set deductions from your employees’ pay and paying these to IRD.
All employees in New Zealand that earn an income working for an employer are required to pay a tax called pay as you earn (PAYE).
All wages and salary are subject to PAYE, in addition to:
- any regular bonuses,
- an ACC earnings-related payment,
- any taxable allowance, and
- value of board and lodgings.
Aotearoa New Zealand has a graduated tax system. This means that there is not one set rate on income tax. Specific tax rates are applied to taxable income ranges; meaning that as the employee earns more, they move into a different income range and are taxed at a different rate for those earnings.
Current PAYE rates can be found on IRD’s website.
Student loan repayments
Anyone with a tax code that ends in SL must make student loan repayments – if they are earning over a set threshold. In most cases you’ll need to deduct 12 cents for every dollar they earn above this threshold.
Secondary income is also subject to student loan repayments.
Visit IRD’s website for more information about student loan repayments and the current student loan thresholds.
Child support payments
As an employer you are required by law to deduct child support payments from an employee’s wages if IRD tells you to do so. Child support payments have priority over any other form of deductions, other than PAYE. You must keep deducting these payments until IRD tells you to stop.
Employers will receive a Child Support Notice (CS503) from IRD. This will instruct them how much to deduct and how to pay the deductions.
It’s important that you respect your employee’s right to privacy when it comes to child support payments.
All employees aged 18 to 64 who are New Zealand citizens or permanent residents, must be enrolled in KiwiSaver when they start a new job – if they aren’t already enrolled.
They can opt out of KiwiSaver once they have worked for you for 14 days. They have another 6 weeks to opt out; after that they can apply for a late opt-out. It’s also possible for employees who are already enrolled in the scheme to apply for a savings break.
Your employees can also choose their own provider. If they don’t have a nominated provider IRD will automatically enrol them in one of the nine government-appointed default providers.
Employees can contribute 3%, 4%, 6%, 8% or 10% of their pre-tax pay to their KiwiSaver. A KS2 form must be completed by employees to choose or change their contribution rate.
As an employer, you must contribute another 3% (minimum) of your employee’s gross pay to their KiwiSaver account. You can contribute more if you wish to.
The employee’s contribution to KiwiSaver is not taxed. However, the employer’s contribution is taxed. This tax is called employer superannuation contribution tax (ESCT). The level of ESCT varies according to the employee’s annualised income. It ranges from 10.5% to 33%. Visit IRD’s website for more information about ESCT.
Download the KiwiSaver employer guide (KS4) for more information about your KiwiSaver responsibilities.
Under the Holidays Act 2003, employees are legally entitled to several different types of leave – regardless of their employment type. These include:
- annual holidays (often called annual leave),
- entitled to a minimum of four weeks a year after 12 months of continuous employment,
- sick leave,
- a minimum of ten days per year, available after 6 months of continuous employment,
- bereavement leave,
- a minimum of three days per death of a spouse or partner, parent, child, sibling, grandparent, grandchild, or spouse or partner’s parent, and
- one day, at the employer’s discretion, on the death of another person, available after six months of continuous employment, and
- family violence leave (sometimes referred to as domestic violence leave),
- a minimum entitlement of ten days to deal with effects of domestic violence. At the employer’s discretion, a short-term variation to their working arrangement can also be agreed.
Each day or week of leave holds a monetary value, based on the employees earnings in the period before leave is taken. It is important to know how this value is calculated as it can vary for different employees. Check out Employment New Zealand’s website for more information on leave calculations.
Annual holidays (annual leave)
If an employee has been working less than a year, then they aren’t entitled to annual holidays. However, you may let them take some of their annual holidays in advance.
In limited circumstances some employees may be paid holiday pay at the rate of not less than 8% of their gross earnings with their regular pay instead of being provided with 4 weeks’ annual holidays each year.
This can only be done if:
- the employee is employed on a genuine fixed-term agreement of less than 12 months, or
- the employee works so intermittently or irregularly that it is impractical for the employer to provide them with 4 weeks’ annual holidays.
In both of these situations:
- the employee must agree to it in their employment agreement, and
- the 8% gross earnings must be shown as an identifiable component of the employee’s pay.
If an employee’s job ends before they become entitled to annual holidays (and the employer has not been paying annual holidays as paid-as-you-earn) the employer must pay out any outstanding annual holidays at 8% of the employee’s total before-tax earnings from the time they started the job to the end.
Cashing out annual holidays
Some employers let their staff accumulate annual holidays (annual leave) over several years. Your staff are also legally entitled to cash out one week of annual holidays a year if they choose to.
There’s no legal limit to how many years worth of annual holidays your staff can accumulate, but we recommend limiting it to around 5 weeks or 25 days. That’s what we do at Thankyou Payroll.
There are a couple of reasons for this:
- carrying accumulated annual holidays is a financial liability – if that person resigns you will have to pay out their outstanding leave in full which may put a dent in your budget, and
- it’s important for work-life balance that your employees actually take time off – they’ll be more productive and refreshed if they have a decent holiday every year.
Sick leave is paid time off work if an employee, their spouse, partner, dependent child, or other person who depends on them is sick or injured.
Sick leave entitlements are not prorated in any way. For example, even if a part-time employee only works three days a week, they still get 10 days’ sick leave a year.
Your employees are legally entitled to accumulate 20 days of sick leave. You may reach an agreement that allows them to accumulate more than 20 days. Your employees cannot cash out unused sick leave, and they are not paid for unused sick leave in their final pay.
Bereavement leave gives an employee time to grieve and to take care of matters to do with the bereavement. This can be taken at any time and for any purpose relating to the bereavement. It does not have to be taken straight away or on consecutive days.
Employers often agree to give employees additional bereavement leave above the minimum entitlement, depending on the circumstances.
Payment for bereavement leave is only made if the employee would have otherwise worked on the day.
Family violence leave
Family violence is also known as domestic violence. It means all forms of violence in family and intimate relationships. Family violence can be physical, sexual or psychological abuse.
It does not matter when the family violence took place. Employees still have these rights if they experienced family violence before they began working for their current employer or before the law changed on 1 April 2019.
If an employee does not use their family violence leave in 12 months, they can’t carry it over to the next year. If they stop working for their employer, their employer does not have to pay them for any family violence leave they have not taken.
New Zealand has 11 public holidays a year. These are additional to annual holidays and employees are entitled to public holiday benefits as soon as they start working for you. The rules around public holiday benefits are covered by the Holidays Act 2003.
They can be complicated, particularly if you employ casual or part-time staff. But in the majority of cases the following rules apply if:
- a waged employee works on a public holiday they must be paid time-and-a-half for every hour they work. They are also entitled to an ‘alternative holiday’ – one day off in lieu, if the public holiday was an otherwise working day for them,
- a salaried employee works on a public holiday they are also entitled to be paid time-and-a-half for every hour they work, as well as an ‘alternative holiday’ – if an otherwise working day,
- an employee, either waged or salaried, is not normally scheduled to work on the day of a public holiday, but offers to work. They would be paid time-and-a-half, but they would not be entitled to an ‘alternative holiday’ as it is not an otherwise working day for them,
- an employee, either waged or salaried, is normally scheduled to work on the day of a public holiday but they are not required to work on it, they are paid their usual pay for the public holiday, or
- an employee, either waged or salaried, is not normally scheduled to work on the day of a public holiday and they are not required to work on it, they do not get paid for the public holiday.
You’re not legally required to provide your employees with a payslip each time you run a payroll – unless it’s in your employment agreement. But giving your employees a payslip is a useful way to make sure you both understand how their pay is made up.
A payslip can include:
- how many hours the employee worked during that pay period,
- gross pay for that pay period.
- pay rate,
- PAYE deductions,
- any other deductions you made (such as KiwiSaver or student loan payments),
- how much annual leave they took, and how much they have owing, and
- how much sick leave they took and how much they have owing.
A payslip can be anything from a handwritten document to an app your staff download onto their phones – it’s up to you to decide how you want to issue them. At Thankyou Payroll we email your employees their pay slip and send a summary of these to your administrator. Employees can also download a free app where they can find information about their income, leave balances and payroll giving totals.
An employee’s final pay must be paid on the pay day for their final period of employment – at the latest. However, the final pay can be paid before this, like on the employee’s last day of work.
A final pay includes:
- payment for all the hours worked since their last pay until the end of employment, and
- payment for any unused annual holidays. This includes both allocated annual holidays from the previous 12 months, and any alternative holidays they have accrued since then.
Good records are the secret to taking the pain out of final pays. They make it easy to calculate exactly how much annual leave an employee has owing to them so you can include it in their final pay.
Tips for final pays
There are a couple of things that can trip you up when you’re calculating the value of outstanding annual holidays. If you’re not familiar with these you may end up making an expensive mistake – this is where a PAYE intermediary can be useful.
- If your employee has worked for you for 12 months or more, they may be entitled to be paid for public holidays that occur soon after they have finished working.
- This happens because outstanding annual holidays effectively extend their period of employment with you. For example, if your employee’s last day of work is the day before Good Friday and they have two weeks (10 days) of annual holidays owing to them, they must be paid for those 10 days, plus another two days for the public holidays on Good Friday and Easter Monday.
- Any outstanding annual holidays continue to attract an 8% annual holiday entitlement. That means that if your employee has 80 hours (two weeks) of allocated annual holidays, you must pay them for those 80 hours, plus another 6.4 hours (8% of 80 hours).
New Zealand Payroll Giving
At Thankyou Payroll we have a strong commitment to giving. We love payroll giving because it provides an easy giving pathway.
Payroll giving allows your staff to donate directly from their pay and get an immediate 33.33% tax credit. They can make the donations every time they get paid or choose to donate less often.
Our employee app means that staff can easily keep track of their giving and check out their giving totals.
Payroll giving is easy if you use a PAYE Intermediary like Thankyou Payroll – we’ll take care of the whole process for you.
If you organise your own payroll and you have staff who want to take part in payroll giving you’ll need to set up a system to:
- deduct the nominated donation from your employee’s salary for each payroll,
- calculate the 33% tax rebate on the donation and reduce their PAYE by that amount,
- file information about the tax/charitable rebate to the IRD – you’ll need to do this at the same time as you file other employee payroll information, and
- ensure you pay the donation to the employee’s chosen charity within a specified period ( see the IRD website for the current payment schedules). You’ll have two months and two days after the end of the pay period to pay the donation.
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