Focus on employees
In any business – regardless of size – employers have to meet certain legal requirements when hiring or managing employees.
If you’re thinking about hiring additional staff or are unsure about what you need to do as an employer, this page will help you understand the different types of employees, from full-time to fixed contract, your tax obligations and how to arrange employee deductions.
On this page:
- Who is an employee?
- Your obligations as an employer
- Fixed term employees
- Casual and part-time employees
An employee is someone who has agreed to work for payment. The agreement is usually formalised by signing an employment agreement, and payment can be in the form of wages, a salary, commission or piece rates, where a person is paid an agreed amount for each kilogram of fruit picked, or per garment produced.
It isn’t a simple matter of assuming that anyone who works for your business is an employee. Employees can include:
- People who work from home or away from your place of work.
- People who have been offered and have accepted a job, but haven’t actually started work yet.
- Fixed-term, part-time or temporary employees.
- Seasonal employees.
- Probationary and trial employees.
Because your obligations differ depending on whether the person doing work for you is an employee or a contractor, it’s important to understand the difference.
An employee is not:
- A self-employed or independent contractor. Some self-employed people can be self-employed in one line of work, and work for someone else as an employee.
- A sharemilker (a person who lives on a dairy farm milking the owner’s herd for an agreed share of the profits).
- A real estate agent whose agreement says they are an independent contractor.
- A volunteer who does not receive a reward (financial or products or services) for working.
- In some cases, a person who is engaged in film production.
Find out more about employees and self-employed contractors on the Inland Revenue website.
For every employee you hire, there are some legal and tax requirements you should be aware of. Here are eight of the most important requirements.
1. Register as an employer
If you haven’t employed anyone before, you’ll need to register as an employer either online or by submitting a completed IR334 form. You will need to provide your company, partnership or personal IRD number when you register, so have this handy.
Once registered, you may be contacted by one of Inland Revenue’s Tax Advisers to guide you through setting up your employer monthly schedules (your tax data for employees each month) or any other PAYE-related queries you may have.
2. Operate within the law
You need to keep a record of payments made to your employees.
Employees from overseas (without New Zealand Citizenship) need a work visa to legally work in New Zealand. Read more about Employing workers from overseas.
If an employee doesn’t have an IRD number, they’ll need to submit a completed IR595 form to get one. PAYE must be deducted at a higher rate until a valid IRD number is provided.
3. Deduct Pay As You Earn (PAYE) tax
Every employee must complete a tax code declaration (IR330) before their first pay day to ensure you deduct PAYE using the right tax code.
You’ll need to deduct PAYE from your employees’ wages each pay day at the rate indicated in the PAYE deduction tables set out in IR340 or IR341. Both forms make it easy to calculate PAYE by providing a clear description and PAYE chart. You will then need to pay these PAYE deductions to Inland Revenue.
Where you have a number of employees, you may want to outsource your payroll obligations to a specific payroll services provider or look at purchasing a computer payroll package.
Read more about PAYE and payroll.
4. Provide an employment agreement
It’s now compulsory to provide your employees with a written employment agreement. This is a formal acknowledgement of the terms and conditions of work agreed between you and your employee.
Employment agreements provide legal protection to both you and your employee and can help prevent problems arising in the workplace. There are some things which have to be covered in employment agreements, such as hours of work and the wages or salary. Find out What to put in employment agreements.
5. Pay Fringe Benefit Tax (FBT) if you provide fringe benefits
If you provide your employees with perks or fringe benefits such as a company car, low-interest loans, discounted goods and services, or other benefits, you may need to pay FBT.
Find out more about Fringe Benefit Tax.
6. KiwiSaver deductions and payments
KiwiSaver is a voluntary work based savings initiative to help New Zealanders save for retirement. Members of KiwiSaver build up their savings through regular deductions from their pay, and KiwiSaver contributions from their employer.
As an employer, you must automatically enrol eligible employees aged between 18 and 65 if they are on a permanent contract or will be temporarily employed for longer than 28 days, although employees can choose to opt out if they wish to.
You also must give new employees a KiwiSaver information pack within seven days of their starting work and make KiwiSaver deductions and compulsory employer contributions from their first pay day.
Find out more about KiwiSaver.
7. Student loan deductions
If an employee’s tax code includes SL (for Student Loan), you will need to deduct student loan repayments from their pay. If your employee earns less than the pay period repayment threshold ($367.00 per week) you don’t need to make any repayment deductions.
To find out how to make employer deductions, visit Inland Revenue’s student loans web page. Your employees can find out more about their obligations by visiting StudyLink’s (New Zealand government student loan provider) Paying back your loan web page.
8. Other deductions
You might need to make other deductions such as child support payments (Inland Revenue will contact you in this case) and ACC payments, including employers’ work accident cover. Consult the Other deductions page for more information about other deductions you might need to make.
9. Minimum wage and other minimum employment rights
All employees are entitled to certain minimum rights and it’s your responsibility as an employer to ensure you meet these rights, including paying at least the minimum wage rate and allowing for statutory work breaks and holiday pay, to mention only a few.
Find out more about Minimum employment rights and Workplace regulations. There is also more information on Tax requirements for first time employers and your Obligations for new staff.
Fixed-term employees have the same rights as other employees, except their jobs finish at the end of the fixed term. If you intend to hire an employee on a fixed-term basis, you’ll need to provide a reason why the employee is required for that time only. This is usually communicated in employment negotiations and must be included in their employment agreement.
For example, you may require an employee for three months to work on a project. You could hire them for three months or until the project finishes. The employment agreement should set an end date and clearly explain why the work will finish.
The minimum employment rights also apply to part-time employees and casuals, such as rights to annual and statutory holidays, sick leave and bereavement leave.
For more information, download Inland Revenue’s useful First-time Employer’s Guide (IR333) for new employers.