Basic Payroll Information for Small Businesses

by The FindLaw Team

Money is one of the main reasons why people work, so it’s important to get it right when paying them. There are various laws that relate to salary and wages and business should make sure they know how employees must be paid, the deductions that can, can’t, and must be made, and what records must be kept.

Method and frequency

Employees have the right to be paid in cash (unless they work for the Government or a local authority) under the Wages Protection Act 1983. However, making cash payments can be more time-consuming and less safe than other methods. Employees can be paid by cheque, direct credit, or money order, but only with their signed agreement.

There is no legally required frequency for paying wages. The law requires wages to be paid ‘when they fall due’. Weekly or fortnightly is common practice in New Zealand.

The method and frequency of paying wages or salary is commonly stated in the employment agreement. If it is not, the employee could be asked to sign an authorisation instead. Pay slips are not required to be provided by law, but many employers choose to do so.

If pay day falls on a public holiday, employees must be paid on the last working day before the public holiday. If it falls during a period of annual leave, the employee is entitled to be paid their holiday pay before the leave begins unless both parties agree that the employee will be paid on their usual pay day.

Wage records

Under the Employment Relations Act 2000, employers must keep wages and time records for all employees for at least 6 years. The information that must be recorded is:

  • The employee’s name, age, address, and the type of work they usually do;
  • Whether the employee is covered by an individual or a collective employment agreement;
  • For employees under a collective agreement, the title and expiry date of the agreement, and the employee’s classification under the agreement;
  • The daily hours the employee works and the days on which they work in each pay period, if this information is used to calculate their pay;
  • The employee’s wages for each pay period and how they were calculated; and
  • Details of any employment relations education leave the employee has taken.

Minimum wage

All employees aged 16 or older (apart from trainees and new entrants) must be paid at least the minimum wage. This is regardless of whether they are full-time, part-time, casual, a homeworker, paid by commission, or on a piece rate.

Current minimum wage rates are available from the Employment Relations Service website: www.ers.govt.nz.

Equal pay

The Equal Pay Act covers more than just pay – it’s illegal to treat someone less (or more) favourably based on their gender when deciding employment terms, work conditions, fringe benefits, training, promotion, and transfer.

Deductions from pay

Only certain deductions from pay are permitted under the Wages Protection Act 1983. These deductions are:

  • Those required by law, eg PAYE, ACC, student loans, child support, and KiwiSaver;
  • Deductions covered by the employment agreement;
  • Deductions for which the employee has given their written consent, eg social club fees or debts to the employer;
  • Deductions ordered by a district court; and
  • Recovery of certain overpayments so long as the correct procedures are followed.

PAYE (Pay as you earn)

PAYE is the system set up by the Income Tax Act 2007 for taxing the income of employees. It must be deducted it from most payments made to employees, and paid to Inland Revenue. It applies to all wages, salaries, and extra payments (eg bonuses and lump sums).

When PAYE is paid to Inland Revenue, the employer must file an employer’s monthly schedule.

The ACC earners’ levy is paid on top of the income tax rates and is automatically added to the rates in Inland Revenue’s PAYE deduction tables. There are some payments, such as redundancy payments and retiring allowances, that are not subject to the earners’ levy.

It’s illegal to use PAYE deductions for anything other than paying them to Inland Revenue.

KiwiSaver

Under the KiwiSaver Act 2006, employers are required to deduct KiwiSaver contributions from the salary or wages paid to employees from the first payment of wages or salary made after a new employee begins employment or if the employer receives a notice requiring deductions for an existing employee.

Deductions must cease if the employee opts out of KiwiSaver or the employer is provided with a notice of contributions holiday for the employee (either from the employee or from Inland Revenue).

Employers must pay a compulsory KiwiSaver contribution for employees who have KiwiSaver contributions deducted from their pay (with certain exceptions, eg if the employee is aged under 18).

KiwiSaver contribution deductions must be paid to Inland Revenue along with PAYE. Inland Revenue will on-pay it to the employee’s KiwiSaver provider.

Student loans

Student loan repayments are made through PAYE. If an employee has a tax code ending in ‘SL’, student loan deductions must be made from their pay and lump sum payments.

Student loan deductions don’t have to be made from the earnings of casual agricultural employees, election day workers, people on withholding payments (eg contractors), or those on the ‘no declaration’ rate.

Child support

Child support must be deducted from an employee’s pay on notification from Inland Revenue. Child support takes priority over all other deductions except PAYE.

Contractors

Tax must be deducted from schedular payments to certain contractors (formerly known as withholding tax). IR330 lists the types and rates of withholding payment deductions. These payments must be included in the employer’s monthly schedule.

Fringe benefit tax

Employee benefits, such as low interest loans or a company car used for personal use, are subject to fringe benefit tax (FBT). FBT must be deducted from the employee’s pay and submitted to Inland Revenue. The form for FBT is IR420.



We welcome your feedback

Hi there! We want to make this site as good as it can for you, the user. Please tell us what you would like to do differently and we will do our best to accommodate!


 
 
We've updated our Privacy Statement, before you continue. please read our new Privacy Statement and familiarise yourself with the terms.
Feedback