Payroll glossary for kiwi businesses
Payroll jargon can seem like an entirely different language. Our glossary unpacks common payroll terms – giving you the confidence in your payroll knowledge.
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ACC (Accident Compensation Corporation) covers everyone in Aotearoa New Zealand if they are injured in an accident. Their cover helps pay for the costs of your recovery.
ACC earners levy
A tax collected by IRD on ACC’s behalf – for the purpose of funding the cost of non-work related injuries. This is calculated as part of PAYE deductions. Check out the current ACC earners levy rates.
ACC week 1 payment
If an employee is injured at work, their employer must pay them 80% of their normal weekly earnings. This payment applies for the first week of injury – if the employee’s doctor states that they are unable to work due to their injury.
ACC week 2 payment
If an employee is off work for longer than one week due to injury, ACC will pay the employee 80% of their normal weekly earnings from week 2. In some cases, the employment agreement will state that the employer will top up this payment with 20% of their normal earnings.
Accrued leave is the value of the leave accumulated by the employee and is calculated at 8% of gross earnings. This amount will be shown in approximate days available on the employee’s payslip and must be paid to the employee in their final pay – in addition to allocated days of annual leave.
Sometimes referred to as ‘alternative holiday’ or ‘a day in lieu’, this is a day given to an employee if they work a public holiday on what was an otherwise working day for them. Alternative leave may also be used to give time off to an employee – rather than paying them overtime.
Sometimes referred to as ‘annual holiday’, annual leave is paid time off granted to employees by their employer. Employees are entitled to a minimum of 4 weeks of annual leave each year. This is allocated to an employee after 12 months of continuous employment – unless stated otherwise in an employee’s employment agreement.
Annual leave anniversary
The date an employee becomes entitled to take annual leave. It is also the date the employee’s accrued leave resets to 0 as the days previously accrued will now be allocated. This date will be the day at the end of 12 months of continuous employment.
Annual leave in advance
Annual leave taken within the first 12 months of continuous employment, or after all of an employee’s allocated annual leave entitlement has been used. This is approved at the discretion of the employer.
Average daily pay (ADP)
A calculation used to determine the value of sick leave, bereavement leave, family violence leave, alternative holiday and public holiday pay. Calculated by taking the employee’s gross earnings for the 52 weeks prior to the end of the last pay period and dividing it by the number of days and part days worked. This calculation is only used if it is not possible to calculate the relevant daily pay (RDP).
Average weekly earnings (AWE)
A calculation used to determine the value of annual holiday taken by an employee. Calculated by taking an employee’s gross wages over the previous 52 weeks and dividing the total by 52 weeks. If an employee has worked fewer than 52 weeks, you would use the weeks worked for this calculation.
Paid time off when a close family member dies or when the employer accepts that the employee has suffered a bereavement. The number of days varies based on the relationship between the employee and the deceased. Employers often use their discretion in relation to bereavement leave.
Cashing-up annual holiday
Payment of annual leave in addition to an employee’s earnings – instead of the employee taking time off work. Employees can only cash out 1 week of annual holiday per year.
A casual employee has no guaranteed hours of work, no regular pattern of work, and no ongoing expectation of employment. This arrangement must be made clear in the employment agreement.
Child support payment
Deductions from an employee’s earnings, instructed by IRD, for the payment of child support. Employers will receive a Child Support Notice (CS503) from IRD, which they must act on until further notice is given by IRD.
A payment made based on a percentage of actual sales or achieving a target. Commission can be paid on top of a salary or a wage, or the employee could be working on commission only.
Someone contracted for a service by an employer. They do not receive an employment agreement. Their rights are determined by general civil law and they are not entitled to the minimum employment rights.
A unique code assigned to registered NZ charities, beginning with the letters ‘CC’.
Ex-gratia payments that an employer doesn’t have to pay the employee under the employment agreement. If an employer is bound under the employment agreement to make a payment, then it is not a discretionary payment.
An agreement between the employer and the employee, stating the nature of an employee’s employment. The agreement includes, but is not limited to: start date, hourly rate or salary, and employment type.
Someone who enters into an agreement with an employer, where they agree to serve the employer and are remunerated for their labour. They must have a signed employment agreement. An employee includes: full-time, part-time, permanent, fixed-term, casual and seasonal worker – amongst others.
Employer superannuation contribution tax (ESCT)
A tax deducted from the employer Kiwisaver contribution – if this contribution is not included in the employee’s gross earnings. Check out the current ESCT rates.
Additional leave is available to parents also eligible for primary carer leave. It extends the amount of leave available to 52 weeks following the birth of a child or adoption/whangai/home for life – depending on how long the parents have worked in their current employment.
Family violence leave
Paid leave for employees affected by family violence. Family violence, also known as domestic violence, includes physical, sexual or psychological abuse experience in family or intimate relationships.
If an employee leaves employment, they will be due their final pay. Employees should receive their final pay on the pay day for their final period of employment at the latest. It must include payment for all the hours worked since the last pay until the end of employment, payment for annual holidays, public and alternative holidays owing, and any other payments owing.
An employee employed for a set period of time, an event or project, and cannot be used instead of a probationary period. There must be a genuine reason based on reasonable grounds for the fixed term and the employee must be told about this reason.
Employment legislation doesn’t define what full-time work is, but full-time work is generally considered to be around 35 to 40 hours a week.
The underlying concept that governs how parties interact and manage the workplace relationship. Good faith is about both parties to the relationship not misleading or deceiving each other and communicating effectively.
All payments that the employer is required to pay to the employee under the employee’s employment agreement for the period during which the earnings are being assessed. The earnings are usually being assessed to calculate the payment of holiday and leave.
The total an employee earns in salary, wages or other payments – before deductions are made.
A 15% tax added to the price of most goods and services. Contractors may be registered for GST, which would impact your payroll.
Paid to employees employed on a genuine fixed term contract of less than 12 months, or when the employee works so intermittently it isn’t practical to provide 4 weeks of annual leave per year. Holiday pay is calculated at 8% of gross earnings.
Holidays Act (2003)
All employees working in New Zealand are legally covered by the Holidays Act (2003). The Act governs the employee’s holidays and leave entitlements, and sets out the responsibilities of the employer.
A payment made to stimulate specific activity or future performance from an employee, by an employer.
Inland Revenue Department (IRD)
IRD collects tax revenue, along with other deductions from an employee’s pay, such as student loan deductions.
A form employees must fill out when starting work for a new employer. This form will advise the employer what tax code to use for the employee.
A form required by IRD to remove the link between a business and a PAYE intermediary.
A form required by IRD to link a business and to a PAYE intermediary.
A voluntary savings scheme to help employees save for retirement. Whilst voluntary, all eligible employees must be enrolled in KiwiSaver by an employer unless they opt-out.
Employers must contribute at least 3% of an employee’s gross earnings, if they are enrolled in KiwiSaver. By default, employees will contribute 3% of their gross earnings – although they can increase their contributions up to 10%.
KiwiSaver savings suspension
All employees who have been enrolled and contributing to their KiwiSaver for 12 months or more can take a savings suspension for 3 months to 1 year. Employees do not need to give a reason and they can have as many savings suspensions as they want.
A form advising the employer whether they are enrolled in KiwiSaver, if the employee is on a savings suspension and what contribution rate the employee would like to contribute at. All employees should complete a KS2 form and return it to their employer.
The value of leave an employer owes to an employee at the end of employment.
Leave without pay
Leave taken by the employee, without pay – as agreed with the employer.
Minimum rights and responsibilities
Employee rights guaranteed by law, even if they aren’t stated in the employee’s employment agreement or are traded off against other clauses in the agreement.
If a public holiday falls on a Saturday or Sunday and an employee doesn’t usually work on these days, the public holiday is moved to the following Monday (or in some cases Tuesday if there are two consecutive holidays). This is known as ‘Mondayisation’.
Check out Employment NZ’s Mondayisation Flowchart for help determining which date your employees should observe the public holiday.
The pay an employee takes home and will see deposited into their nominated bank account. This will be their gross pay, minus deductions such as PAYE, KiwiSaver and student loan repayments.
Next possible pay day
Applies when banks are closed due to public holidays and an employer’s regular pay day is not possible due to those closures. The next possible pay day refers to the earliest date available to pay their employees.
The date that a public holiday is celebrated. The observed date is sometimes different from the calendar date if the public holiday falls on a weekend (i.e. if the public holiday is Mondayised).
Ordinary weekly pay (OWP)
The amount an employee receives under their employment agreement for an ordinary working week. Intermittent or one-off payments, as well as discretionary payments and employer contributions to superannuation schemes are not included.
Otherwise working day
A day that an employee would have been working had the day not been a public holiday, sick leave, bereavement leave, annual holiday or alternative holiday for that employee.
Employment legislation doesn’t define what part-time work is, but part-time work is generally considered to be less than 35 hours a week.
Available to the spouse or partner of an employee having a baby. Employees are entitled to 1 or 2 weeks of partners leave, depending on how long they have worked for the employer.
Parental leave payments
Payments made by IRD to the primary caregiver of a child under 6 months through giving birth or otherwise taking permanent primary responsibility for the care of the child through adoption, whāngai or home for life.
The frequency with which employees are paid. Most commonly this is weekly, fortnightly or monthly.
The day your employee’s earnings will be deposited into their nominated bank account.
The period for which you are paying your employees.
A physical or electronic document that advises the employee how much they were paid. It will often show how much annual holiday and sick leave they have available. Employers are not legally required to provide pay slips.
PAYE - Pay as you earn
An income tax deducted from an employee’s earnings, based on how much they earn in a pay period. Check out the current PAYE rates for individuals.
Sometimes referred to as a payroll intermediary, this is a third party who has the authority to engage with IRD on behalf of a business. This specifically relates to payroll matters. PAYE intermediaries are accredited by IRD.
A system that allows employees to donate directly from their pay and get an immediate 33.33% tax credit – back into that same pay.
An electronic tool which provides a framework for employers to enter their payroll data into. The payroll software will automatically make calculations based on this data and present the employer with payroll values.
Additional payments usually provided as a rate to the employee for special activities, such as: overtime, doing special tasks, or for working shifts on a particular day.
Employees who are employed by the employer indefinitely until either party terminates the agreement.
A type of payment is typically used in agriculture – specifically for fruit picking. The employee would be paid a rate on units of production they have worked on or produced.
Primary carer leave
Up to 26 weeks of leave available to employees having a baby, or their spouse if they have all or part of the birth mother’s parental leave payments transferred to them. It is also available for employees who will be the primary caregiver for a child under 6 years of age through adoption, home for life or whangai.
A payment to employees based on their overall performance. This could be tied to meeting particular KPIs.
Aotearoa New Zealand has 11 public holidays plus a selection of anniversary days. Employees get a paid day off on public holidays if it’s an otherwise working day for them.
Relevant daily pay (RDP)
RDP means paying an employee what they would have earned if they were at work on the day. This should always be used in the first instance to calculate the value of sick leave, bereavement leave, family violence leave, alternative holiday and public holidays.
A fixed annual amount that is divided equally by the number of pay periods. Often, this will include compensation for working additional hours built into the salary rate, so no additional payment would be made to the employees for additional hours worked.
Commonly employed in the agricultural sector, and are employed until the end of the season – as defined by the employment agreement.
Paid time off work if an employee, their spouse, partner, dependent child, or other person who depends on them is sick or injured. The minimum entitlement is 10 days once an employee has worked for the employer for 6 consecutive months – regardless if they are part-time or full-time employees.
Sick leave anniversary
The date an employee becomes entitled to sick leave or is allocated additional sick leave. Initially the anniversary date is 6 months after continuous employment and then 12 months after that.
Student loan repayments
Payments employers are required to deduct from employees with an obligation to repay a student loan once in employment and pay to IRD. Check out the current student loan repayment rate and thresholds.
Where the work hours, leave, expenses, deductions and bonuses are recorded and calculated for each employee.
An employment situation where an employee is employed by one employer (the employer), but is working for another business who controls their day to day work (third party).
Unpaid bereavement leave
Bereavement leave taken by an employee, for which they receive no payment – as agreed to by their employer.
Unpaid sick leave
Sick leave taken by an employee, for which they receive no payment – as agreed to by their employer.
Someone who must not expect payment and they must not receive payment for any work completed. Volunteers are not employees, so employment law does not apply to them (with the exception of Health and Safety law).
A payment based on an hourly rate and is only for an employee that gets paid just for the hours that they work.
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