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Things to know when paying your employees
There’s a lot more to paying your employees than setting up a fortnightly automatic payment.
Make your job easier by putting the right systems in place and keeping accurate records.
If your workplace has been disrupted because of a natural disaster or emergency, you still have responsibilities to pay your employees.
This could include if your workplace has been damaged by floods or cyclone, the electricity supply is not working, or your IT systems had been disrupted, which could mean employees can’t work from home either.
Employment during and after disasters(external link) – Employment New Zealand
What you need to know
You must:
- pay at least the minimum wage
- legally pay employees in cash, unless you’ve agreed another method in writing, for example, their employment agreement
- pay employees as frequently as agreed in their employment agreement
- get their consent in writing to change the day or frequency they get paid
- pay annual holiday leave to staff before they go on leave, unless otherwise agreed in writing, eg in their employment agreement
- keep accurate records of all payments for at least 6 years.
Payment of wages(external link) — Employment Agreement Builder
Find out what you know about hiring and managing people.
Case study
Paying piece rate workers fairly
Glenn is the new manager of an orchard in Hastings. As he recruits pickers at a "bin rate" of $35 for each bin of apples, he tells them the average is three bins a day.
As Ollie, the owner, prepares to approve pay after the first week of harvest, he notices some pickers aren’t earning the daily minimum wage. They all work eight hours a day, but those picking three bins are only earning $105 a day instead of the $169.60 they’d earn if paid the hourly minimum wage.
Employment law states the amount earned by piece rate workers can’t be less than the minimum wage. If underpaid, these workers can ask a labour inspector to investigate.
For employees on piece rates, the amount earned an hour, day or week can’t be less than minimum wage. Glenn’s pickers could earn more than the minimum wage if they pick more, but they can't earn less than the minimum wage.
Minimum pay
There are 3 minimum wage rates:
- The adult minimum wage is for any employee aged 16 and over who isn’t a starting-out worker or trainee.
- The training minimum wage is for trainee employees aged 20 and over who are completing industry training (requiring at least 60 credits a year) as part of their employment agreement.
- The starting-out wage is for employees aged between 16 and 19 who are either:
- aged 16-17 and have worked for you for less than 6 months
- aged 18-19 and have been paid a specified social security benefit for six months or more, and who have not yet completed 6 months of continuous work with any employer since they started being paid a benefit
- aged 16-19 and completing industry training requiring at least 40 credits a year.
Minimum wage rates(external link) — Employment New Zealand
Case study
Paying young workers fairly
Ragna owns a Thai restaurant in Queenstown. As the summer season approaches, she hires extra staff, including teenagers looking for work over the school holidays.
She sees it as a win-win situation. The students get valuable work experience, and she saves money by paying them the starting-out wage.
One of the students is Abi, a Thai immigrant who previously helped out in her family’s restaurant in Bangkok. Ragna asks Abi to supervise the other new hires in the kitchen, leaving her free to run the front-of-house.
But Ragna is breaking the law. Employees who are supervising or training other workers are entitled to be paid at least the adult minimum wage. Abi should be paid the adult minimum wage at all times.
Holiday pay
You should:
- pay your employees their annual holiday pay before they go on leave
- pay them the greater of their ordinary weekly pay or their average weekly earnings for the last 12 months
- give them leave and pay them for public holidays if the holiday falls on a day they’d normally work.
Calculating annual holiday payments(external link) — Employment New Zealand
If your employees work on a public holiday, you must:
- Pay them time-and-a-half and give them an alternative day (a day in lieu) if it’s a day of the week they’d normally work.
For further details on paying your employees for public holidays and other leave types, see our paying your employees for leave section.
Employer deductions
You need written permission from your employees for any deductions that aren’t required by law.
Taking money from pay(external link) — Employment Agreement Builder
When you pay your employees’ salaries or wages, you legally have to make deductions to cover:
PAYE (pay-as-you-earn income tax): This includes the ACC earners' levy. The amount of PAYE you deduct depends on the employee’s tax code and how much they earn.
Deductions from salary and wages(external link) — Inland Revenue
Levy calculators(external link) — ACC
KiwiSaver: You need to deduct the employee’s contributions to their chosen KiwiSaver investment scheme, add your own compulsory employer contributions, and pay ESCT (employer superannuation contribution tax) on your employer contributions.
Try Inland Revenue’s calculator to see how much you might have to pay.
PAYE / KiwiSaver deductions calculator(external link) — Inland Revenue
Other deductions
As an employer, you could be asked by an employee or the government to make other tax or non-tax-related salary or wage deductions on the employee’s behalf. This includes:
- Tax on schedular payments
- Student loan repayments
- Child support
- Superannuation fund contributions
- Payroll giving.
Tax on other types of pay
For some other types of pay, like holiday pay and bonuses, you might have to deduct extra tax for Inland Revenue. These include:
Holiday pay: If you agree to an employee’s request to receive up to a week’s holiday pay as cash, it will need to be taxed as a lump sum payment.
Bonuses: Frequent and regular bonuses are taxed by adding the amounts to gross wages for the period in which they were earned. A one-off, annual, redundancy or retirement bonus is taxed as a lump sum payment.
Taxing lump sum payments(external link) — Inland Revenue
Allowances: There are different rules for different types of allowances
Allowances(external link) — Inland Revenue
Checking the cost of an employee
A new employee might take your business to a whole new level. But before you commit, take a moment to think about the less obvious costs involved in taking on a new employee.