The essential guide to payroll in New Zealand
Whether you’re considering setting up payroll operations in New Zealand, or you’re joining an established team there, you’ll need to be across the basics of payroll compliance. Here’s what you need to know.
New Zealand offers some of the highest wages and standards of living in the world. Ranked 51st in the largest national economy and 67th in purchasing power parity, New Zealand has a high GDP for its population, making it one of the most globalised economies in the region.
Its major industries are tourism, manufacturing, and agriculture, with information technology growing rapidly. New Zealand’s free-market economy contributes to their high wages and standard of living. Their 1983 Closer Economic Relations agreement aligns their economy closely with Australia, strengthening the cross-border relationships, making it beneficial for businesses to expand in the region.
Overview of payroll requirements
- Every employee must have a written employment agreement, which identifies all details of the employer-employee relationship. These agreements can be collective or individual, and the type of agreement they have may depend on whether or not the employee is in a union. A non-union employee will be covered by any existing collective agreement for the first 30 days of employment (under the 30-day rule).
- The minimum wage is $18.90 per hour, which will continue to increase in annual increments to $20 per hour by 2021. Work hours are limited to 40 hours per week, with overtime pay worked out by the employer in the employee’s contract.
- All employees are entitled to four-weeks’ paid annual holidays at the end of each 12 months of continuous service.
- Employees are also given five paid sick days, 10 days paid family violence leave, and 3 days bereavement leave that can be availed after the first six months of continuous employment. An additional five paid sick days are given after 12 months.
- There are 11 public holidays in New Zealand, and employees are entitled to have paid days off provided that these are days when the employee would normally work.
- Employees may take an extended leave in case of a work-related accident, and employers are required to cover 80% of the employee’s salary on the first week.
- Eligible female employees are entitled to 26 weeks of paid maternity leave.
Tax and other deductions
New Zealand’s tax year runs from 1st April to 31st
- Payroll specialists are responsible for computing and making various deductions, including taxes (called Pay as You Earn, or PAYE), child support, student loans, and Kiwi Saver from employees’ gross wages.
- Income tax in New Zealand ranges from 10.5% for low-income jobs to 33% for the higher-income earners. Corporations are taxed 28%. A new top tax rate of 39% will be added from 1 April 2021.
- New Zealand uses the Pay as You Earn (PAYE) system, requiring employers to deduct income tax—and social insurance benefit for some—from every paycheck delivered to the employee. PAYE can also be used for workers who have student loans, providing assistance to individuals to meet their minimum dues to reduce financial stress.
- Employers must also offer their employees access to KiwiSaver, New Zealand’s retirement savings program. Eligible employees must be auto-enrolled in Kiwisaver when they commence work and will select a deduction rate of 3%, 4%, 6%, 8%, or 10% of gross earnings to be taken out of their pay. Employers must also contribute a minimum of 3% on top of the employee’s pay as an employer contribution unless the employee has opted out of Kiwisaver or is on a savings suspension.
- Besides normal salaries and wages, employers may also need to account for various taxable or tax-free allowances to be made to or on behalf of employees. These allowances are usually paid as a result of an industrial collective agreement or an in-house agreement. Allowances may include, accommodation, meal, and clothing, benefit, reimbursing, and travelling.
Reporting and compliance
- Employers are required to keep wage records for at least seven years, and failure to do so may incur legal action and penalties. These records can be kept digitally and can be requested on-demand.
- One of the biggest changes to impact payroll in New Zealand recently is New Zealand Inland Revenue’s initiative around payday filing, which aims to reduce the number of steps and potential errors associated with pay runs. From 1st April 2019, employers need to file employment information to Inland Revenue every payday (within at least two working days of paying employees electronically or 10 working days by paper), and if your annual PAYE/ESCT is $50,000 or more you must file the information electronically. The initiative is similar to Australia’s Single Touch Payroll legislation.
Quirks of payroll in New Zealand to take note of
The probation period for employment is typically 90 days, but employers may decide to have a longer trial period, as long as it is discussed with the employee. From 6 May 2019 trial periods are no longer permitted for employers with more than 20 employees (under the Employment Relations Amendment Act 2018).
Last pay for employees who have left the company must be made on the final day of employment (or on the payday for their final period of employment at the latest) unless otherwise stated in the contract.
Saturday or Sunday can be “Mondayised” in New Zealand. If a public holiday falls on a weekend in New Zealand and it is not “otherwise a working day” for the employee it will be Mondayised. E.g. Boxing day 2020 fell on Saturday 26th December, so for those people that normally work Monday to Friday they got to have their public holiday for Boxing day on the Monday. Note: if the public holidays fall on a Saturday or Sunday and that is normally a working day for the employee it is treated as falling on that day.
Of course, these are just the basics of payroll compliance in New Zealand. As with any country’s payroll, there are a lot more complexities you’ll need to be across.
To ensure you’re fully compliant, team up with a seasoned payroll partner like Ascender. We have local experts in New Zealand who can guide you through the process and ensure you’re up-to-date with changing legislation. Get in touch to find out more.
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