New Zealand is one of the pioneers in peacekeeping and global security that follows strict protocols in times of global crisis. New Zealand holds 7th position in worldwide education ranking and 9th in the global happiness index making it a hotspot for businesses.
There are no restrictions in New Zealand on the capital flow, making it entrepreneurs’ top choice. The country has a lucrative export market that contributes 30% of the country’s GDP. It ranks at the top position in the World Bank’s Ease of Doing Business 2020 regarding starting a business. Companies can easily set up their business presence in New Zealand and set up a payroll system to hire talented employees.
Like every other protocol, the New Zealand payroll process follows strict protocols that every employer should know. While Kiwis promise little disruptions and excellent skills, payroll set-up might get cumbersome without a sound knowledge of New Zealand’s exclusive schemes like PAYE, FBT, and KiwiSaver in the long run.
How is Payroll Calculated in New Zealand?
An employer must follow these steps and note specific specialized schemes such as the ESCT, PAYE, KiwiSaver, and FBT to calculate employee payroll.
- Calculate total taxable income: An employer must calculate the total taxable income after considering the basic salary and special allowances with overtime per month.
- Deductions: PAYE slabs are to be calculated and deducted accordingly. Furthermore, an employer should also compute and incorporate schemes like child support KiwiSaver and student loans, if applicable.
- Issuing salary: An employer can transfer the remuneration once deductions are made from the monthly salary.
- Paying taxes on the employee’s behalf: The deductions are to be paid to the concerned authorities, listed below.
- PAYE: The employer is responsible for withholding and remitting the employer tax on a pay-as-you-earn (PAYE) scheme to the Inland Revenue Department (IRD), New Zealand.
- ESCT: The employer calculates and pays the employer superannuation contribution to their employee’s retirement account.
- KiwiSaver: It is a retirement program started in New Zealand. Employees must select a deduction rate between 3%, 4%, 6%, 8%, or 10% from their gross income. On the other hand, the employer must add 3% of their employer’s income to the mentioned plan. The IRD handles it.
- Fringe benefits tax: FBT is a tax on additional provisions received by an employee. It is payable by the employer periodically.
Important Elements of Salary Structure in New Zealand
Per the payroll policies and procedures in New Zealand, some essential elements of a salary structure are listed below.
- A base salary is a minimum remuneration an employee receives in exchange for their services.
- Allowances, overtime, and additional benefits are not counted.
- Net salary is the take-home salary computed by adding the given allowances and overtime payments after deducting taxes.
- In New Zealand, PAYE, KiwiSaver, ESCT, and FBT deductions are made before the net salary is processed and transferred.
- Allowances depend on an employee’s designation and work requirements.
- Dearness allowance, travel allowance, and medical allowance are commonly issued allowances.
How to Set up a Payroll in New Zealand
An employer must follow several guidelines and processes while setting up payroll in New Zealand. Here is the New Zealand payroll process flow chart one should follow.
A company should register with the IRD and provide the following details.
- Registered IRD number
- Bank account details
- Business industry classification
- Contact details
- Start date as an employer
A company should cross-verify and gather all the necessary employee information for payment processing. Some of the crucial information is listed below.
- Full legal name and permanent address
- IRD number
- Verified bank account details
- Registered tax code
- Opted slab for KiwiSaver
In New Zealand, employers must make all the necessary tax deductions before issuing the net payment. These deductions vary per employee account, but some common ones are mentioned below.
- PAYE: Income tax levied on employee remuneration
- KiwiSaver: A retirement saving scheme by the IRD. It is deducted from an employee’s monthly salary.
- FBT: Taxes levied on the benefits issued to an employee
Payment processing system
A connected payment processing system or software is required. It will transfer the salary from the company account to the employee accounts after the necessary deductions are made. An employer can hire a local expert or rely on third-party software.
A Step-by-step Process of Payroll Processing in New Zealand
The payroll rules and regulations in New Zealand add an extra step to payment processing for an employer. An employer must ensure that the listed actions are followed.
Payroll system and policy:
- Employers should opt for a suitable payroll system that fits their budget and meets the necessary payroll requirements.
- They can select a manual payroll system, outsourced payroll process or automated payroll software.
- Provide employees with the payroll policy to resolve queries related to the payroll process.
- The payment is calculated by adding the allotted allowances and overtime compensations.
- Employers must calculate and pay taxes on behalf of their employees.
- The remainder of the net wage is then transferred to an employee’s account.
- For this step, ensure all employees have a salaried bank account. Employers can collaborate with banks to help their employees to set up accounts.
- Make the salary transfers to the employee’s salary bank accounts.
- The records are updated mutually by the IRD, involved organizations, and the employing company.
- Employers in New Zealand don’t need to provide payslips to employees unless agreed in the employment contract.
- However, employees have the legal right to know their salary structure and deductions.
- A pay slip should include the name, number, ID number, bank account, pay period, deductions made, gross and net pay, etc.
In New Zealand, an employer is responsible for paying several taxes on their employees’ behalf from their gross salary. The IRD prescribes this before transferring the salary to the employee’s registered bank account.
- An employer must have a tax code declaration under IR330 to understand the chargeable taxes and other legal responsibilities.
- Employers are liable to pay the PAYE, ESCT, or any other enforceable tax from their employee’s salaries.
- New Zealand employer’s payroll tax includes an additional 3% of their employee’s salary to IRD for KiwiSaver. It is only applicable to employees who have opted for the mentioned scheme.
- Employers are also liable to pay 1% of gross salary + KiwiSaver contribution for accident compensation corporations.
- Every company must complete their payday between the 1st to 15th of a month. Furthermore, the filing should be done within ten working days after payment on the 15th of each month.
The remuneration received by an employee can be termed ‘tax-free’, as employers deduct and pay the taxes beforehand. However, an employee must still understand and select the tax slabs in some instances.
- The annual remuneration of an employee determines PAYE. Based on the total income, it starts from 10.5% to 39%.
- Employees must also contribute 1.39% towards accident compensation corporations. However, the KiwiSaver pension is optional for employee payroll contributions.
An employer initiates the payroll cycle in New Zealand periodically. However, an employee should provide the following information.
- IRD number
- KiwiSaver details
- Bank account details
Payroll cycles vary per company based on the employer and employee agreement. Some commonly witnessed processes in New Zealand are as follows.
- Daily: Payments are made daily after the end of each work day.
- Weekly: Payments are made on a specific day each week. For example, a weekly payment is processed every Monday.
- Monthly: One of the most common payment cycles, where a monthly remuneration is awarded during a specific time each month.
- Fortnight: An uncommon yet accepted HR payroll in New Zealand. Payments are made on a specific date after two months of work.
New Zealand Payroll Options for Companies
Previously, payroll in New Zealand was feasible through a traditional registration with the IRD. However, with the booming opportunities, the new-age New Zealand payroll process is more accessible and affordable. Here are a few payroll options available in the country:
- Local payroll: Companies can outsource from a local payroll service to ensure all payroll rules and regulations in New Zealand are followed. However, an employer is liable for any issues regarding faulty deductions if the payroll compliance checklist in New Zealand is mistaken.
- Global EOR: A global employer of record allows a company to hire and run a payroll in New Zealand without the requirement of IRD registration in the country. An employer must only share employee information with the partner EOR solution.
Entitlement and Termination Terms
While running payroll in New Zealand, employers should be aware of the entitlement clauses for employees enforced by the state.
Minimum wage and work hours
New Zealand prohibits employees from working more than 40 hours weekly. However, overtime is not fixed or limited by the state.
- Equal pay: The equal pay act 1972 prohibits an employer from providing differential treatment in terms of salary and benefits based on gender.
- Hourly pay: The hourly pay in New Zealand is revised and changed every year. As of pre-2023, an employee is entitled to a minimum hourly wage of NZ$21.20. The revised minimum hourly wage for 2023 will be issued post-April.
Employers are entitled to a four-week paid leave annually or every 12 months of active employment. The holidays act 1981 also underlines 11 days for public holidays annually.
- Paternal leave: The employment protection act 1987 highlights a total leave of 52 weeks and ten more days for a female employee.
- Sick leave: Sick leaves can be included within the mentioned number of entitled leaves. Employees can also opt for unpaid sick leaves based on mutual agreement with their employers.
An employer and an employee can initiate termination. The protocols surrounding the contract cancellation by any parties are provided below.
Resignation by an employee
An employee must submit a written note to their employer listing their reason for resignation. Once the request is acknowledged, the employee is requested to serve a certain paid notice period.
Termination by an employer
An employer can terminate an employee for valid reasons. However, they must issue warnings before taking action.
- Employees are entitled to request a written document highlighting the reason for the dismissal.
- An employer must acknowledge the request within 14 working days.
- The New Zealand government prescribes no such notice period length.
- Employers are liable to pay compensation to their employees if such a clause is mentioned in the employment contract. No laws enforce the requirement to pay employees with severance pay.
New Zealand Payroll Processing Company
Multiple local and global companies handle HR payroll in New Zealand. Employers can transfer the payroll responsibilities to these companies and focus on growing their companies.
Global EOR solutions like Multiplier also provide several benefits, which can allow a company to cut down the effort and time required to abide by the payroll rules and regulations in New Zealand.
How Multiplier Can Help With Global Payroll
Multiplier is an EOR solution that provides payroll services in more than 150 countries. Compared to outsourcing from a local HR payroll in New Zealand, employers can neglect IRD registration requirements in the country.
The centralized Multiplier software also allows an employer to keep track of its employees while allowing a company to abide by the payroll rules and regulations in New Zealand. Once employee information is provided, Multiplier takes care of the rest.