21-01-2022

New Zealand Payroll Glossary — The Basics

Learn about the basics of New Zealand payroll. Tax rates, KiwiSaver, leave and more. Please note, the information outlined in this blog is for the current tax year: 1 April 2021 – 31 March 2022.
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Personal income tax

 

NZ personal income tax rates as at 1 April 2021.

Income
Up to $14,000
Over $14,001 and up to $48,000
Over $48,001 and up to $70,000
Over $70,0001 and up to $180,000
$180,001 upwards
Tax rate
10.5%
17.5%
30%
33%
39%

 

KiwiSaver

 

The rate you deduct employee contributions from their gross pay is the following:

  • 3%, 4%, 6%, 8% or 10%

Your employee tells you which rate to use on their KiwiSaver deduction form – KS2 (available on the IRD website).

If an employee is using KiwiSaver and does not choose a contribution rate, use the default rate of 3%.

Employers must contribute a minimum of 3% of their employee’s gross salary or wages to their KiwiSaver. Employers must make these payments every payday. This is in addition to the employee’s gross salary or wages.

Employer superannuation contribution tax (ESCT)

 

A tax on any cash contribution an employer makes to a superannuation fund for the benefit of an employee. For example, employer contributions to an employee's KiwiSaver.

The employee ESCT rates are:

Income for year ended 31 March
$0 to $16,800
$16,801 to $57,600
$57,601 to $84,000
$84,001 to $216,000
$216,001 or more
Tax rate
10.5%
17.5%
30%
33%
39%

 

There are 2 ways to deduct ESCT, you can either:

  • deduct ESCT from each employer contribution
  • include your employer contribution in your employees' gross salary or wage. Tax is deducted under the PAYE rules.

Payday filing

 

Payroll information is filed directly to IRD via payroll software (like Smartly) or online. Employee’s earnings information is sent to IRD, to make sure that tax is calculated correctly and shows correctly in the myIR portal.

You need to do this every payday. Make sure new employees are setup using the IR330 (tax code) and KS2 (KiwiSaver form). Electronic filing needs to be completed within 2 working days of each pay.

PAYE and payments to IRD

 

PAYE payments are due to the IR by the 20th of each following month. If you’re a large employer it’s by 20th of the same month and by 5th of the following month.

A large employer is a business with PAYE and ESCT more than $500,000 per year.

Sick leave 

  • Minimum sick leave entitlements are 10 days per year for employees who have had six months’ of continuous employment or have worked for the employer for six months for:
    • an average of 10 hours per week, and
    • at least one hour in every week or 40 hours in every month.
  • This becomes available to employees after 6 months of employment (The Government is looking to make this available earlier).
  • The maximum amount of sick leave that an employee can accumulate is 20 days, unless otherwise stated in an employment contract.
  • Sick leave is not paid out to employees upon termination of employment.

Student loan

 

Student loan repayments need to be deducted for employees with a tax code ending in SL. Repayments are deducted at 12 cents in the dollar for every dollar the employee earns over the threshold for tax codes M SL and ME SL (see table below). 

Pay frequency
Weekly
Fortnightly
Every 4 weeks
Monthly
Threshold
$390
$780
$1,560
$1,690

 

For other tax codes ending in SL, deductions are made for every dollar the employee earns.

Child support

 

If child support payments need to be made, make sure they are deducting correctly. IRD will let you know when and how much to deduct.

Minimum wage

 

The current minimum wage in New Zealand is $20 per hour. Ensure all employees aged 16 years or over are paid at least this. 

Annual leave

 

Everyone is entitled to 4 weeks annual leave per year. Currently, this becomes available after 12 months of continuous employment, but an employer can make this available in advance.

Leave balance should be held in weeks, rather than hours.

A maximum of one week (out of the employee’s 4-weeks minimum entitlement) can be cashed out for each entitlement year.

Parental leave

 

A parent is entitled to 26 weeks paid leave and a further 26 weeks of unpaid leave subject to relevant eligibility criteria. For further information, please check out our parental leave blog.

The amount an employee is paid during parental leave is equal to their ordinary weekly pay or average weekly income up to $621.76 a week before tax for the 1 July 2021 to 30 June 2022 period. IR makes this payment directly.

Employees continue to accrue annual leave while on parental leave. 

Public holidays

 

Employment New Zealand have handy flow charts to help with public holidays and mondayisation.

Final pay

 

An employee’s final pay must include:

  • payment for all hours worked since their last pay until they end.
  • payment for annual leave and public holidays owing.
  • any additional lump sums or other payments.

Download the PDF

 

We've also turned this blog into a cheat sheet for you to download. 

Download it here: Smartly Payroll Cheat Sheet

Not a Smartly customer? Sign up or switch today.

 

Payroll legislation, the Holidays Act, leave entitlements and more, it’s a lot to get your head around. Our automated and simple to use payroll software can sort this all for you. Learn about Smartly and sign up today.

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Please note, the information outlined in this payroll blog is for the current tax year. 1 April 2021 -31 March 2022.

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