Personal Finance

A Comprehensive Guide to Payroll In New Zealand

New Zealand has become popular for its highest earnings and living standards in recent years. Due to the increasing number of businesses in agriculture, information technology, and tourism, New Zealand has been tagged as one of the countries with the most globalized economies. 

Because of this, many companies and corporations have become interested in expanding their businesses in New Zealand. However, aside from the operational aspect of running a business in the country, business owners should also pay attention to the payroll process and compliance. Failing to do so may result in massive trouble with the employees as well as certain government authorities. 

So, if you’re a first-time employer in New Zealand, here’s a comprehensive guide to payroll that you should know from the get-go. 

Payroll Requirements To Remember 

As an employer, you need to familiarize yourself with the basic payroll requirements and responsibilities in New Zealand. Typically, every employer should provide their employees with a formal agreement concerning their employment. It’s a written document that should outline the duties and responsibilities of both the employer and employee. 

Also, New Zealand’s employment contract can be individual or collective, depending on the situation. For example, a new non-union employee will be covered by a collective agreement for their first 30 days of work. 

Moreover, aside from the employment agreement, the following are some payroll requirements to be aware of:

1. Taxes

Employers in New Zealand have a duty to withhold certain taxes from the employees’ pay during the fiscal year, which runs from April 1 to 31. These taxes can include:

  • Income Taxes: If you employ at least one employee, you should register as an employer to withhold income taxes from the employees. Once registered, you should remit income taxes under the country’s Pay As You Earn (PAYE) system by the Inland Revenue Department (IRD). Under New Zealand’s progressive income tax system, a portion of an employee’s income is taxed based on the rate applicable to specific personal income tax brackets. However, if you want to understand better how income taxes work under the PAYE system, you can check out some reliable resource websites to familiarize yourself with a guide to NZ PAYE. 
  • KiwiSaver Contributions: Employers should withhold tax contributions to the KiwiSaver retirement system for employees covered by KiwiSaver. Generally, this refers to a voluntary savings scheme designed to help employees in New Zealand set up their retirement.  
  • Fringe Benefits Tax: This is a tax paid by employers based on the benefits offered to employees. These can include a provision of goods and services, insurance, subsidized transport, and other benefits.

2. Working Hours, Conditions, And Overtime Pay 

When it comes to working hours, New Zealand has no official rules. But most employers have work hours from 8:30 in the morning to 5:00 in the afternoon with a 40 hour-limit per week. They’re also not required to pay overtime to their employees unless the employment contract provides a provision for overtime pay. 

When it comes to other working conditions like the length of probation, employers can implement 90 days or longer probationary periods, depending on the agreement between them and employees. However, it’s essential to know that the length of probation should be fair and reasonable to the nature of the job and other circumstances. 

3. Compensation, Termination, Bonuses, and Leaves

The standard minimum wage rate in New Zealand is increasing to NZ$21.20 per hour from April 2022. When it comes to termination, the country has no specific official policies. But generally, employees and employers provide the required notice periods in the employment contract. If the employer offers bonuses to the employees, it should be discussed and negotiated before their first day of work. 

On the other hand, New Zealand employers also provide various types of leave. These can include vacation leave, sick leave, paid parental leave, bereavement leave, and workplace injury leave. 

4. Reporting And Compliance 

It’s also essential for employers in New Zealand to keep certain wage records physically or digitally for at least seven years. Otherwise, they may face penalties and potential legal action. Employers should use the country’s Inland Revenue program regarding payroll filing to minimize the errors associated with pay runs. For instance, there are tax deductions to consider under a progressive tax system for workers. Furthermore, it’s essential to know the following steps in paying these taxes to the IRD:   

  • Register with the IRD as an employer. Otherwise, you may have to pay certain penalties for failing to do so. 
  • Require your employees to fill out an IR330 form to identify their tax code. Once you know the code, you can determine the amount of PAYE you should deduct from their pay. 
  • Automatically enroll your employees in the KiwiSaver system. 
  • Make the necessary deductions from your employees’ pay and file the data about these deductions with the IRD within two days after their scheduled payday. 
  • Pay the money you deduct from the employees to the IRD every 20th of the month or every 5th or 20th, depending on your set schedule.   

Bottom Line 

Dealing with payroll in New Zealand can be complicated if you don’t know where and how to start. Therefore, if you’re a new employer in the country, keep this guide about the basics of payroll compliance in mind. That way, you can pay your employees their correct salaries, wages, and benefits and make the necessary deductions for the IRS to avoid legal troubles.   

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