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Paying 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.

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, eg their employment agreement
  • pay employees on the day and frequency 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 six years.

Find out what you know about hiring and managing people.

PayingPieceRateWorkersFairly Orchard

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 $30 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 $90 a day instead of the $122 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 wage rates

There are three minimum wage rates:

  1. The adult minimum wage is for any employee aged 16 and over who isn’t a starting-out worker or trainee.
  2. The training minimum wage is for trainees aged 20 and over who are completing industry training (requiring at least 60 credits a year) as part of their employment agreement.
  3. The starting-out wage is for employees aged between 16 and 19 who:
    • are 16-17 and have worked for you for less than six months; or
    • are 18-19 and have been paid a specified social security benefit for six months or more, and who have not yet completed six months of continuous work with any employer since they started being paid a benefit
    • are 16-19 and are completing industry training requiring at least 40 credits a year.

Minimum wage rates are reviewed every year. The current minimum rate that applies to employees on the starting-out and training minimum wage (before tax) is $12.20 an hour. The current adult minimum wage rate (before tax) is $15.25 an hour.

Minimum wage rates (external link) - Employment New Zealand

PayingPieceRateWorkersFairly Teenage

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 or Ragna risks a labour dispute.

You’ll find full details about pay for the different types of leave in our holidays and leave section .

In general, however, 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
  • if they work on a public holiday, 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.

More information:

  • Annual leave
  • Public holidays
  • Sick leave
  • Bereavement leave
  • Parental leave

Find more detailed information about:

Payment for annual holidays  — Employment New Zealand

Payment for other types of leave  — Employment New Zealand

Employer deductions

You need written permission from your employees for any deductions that aren’t required by law.

PAYE and KiwiSaver

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.
  • 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 (IR) PAYE / KiwiSaver deductions calculator (external link) to see how much you might have to pay.

More information:

  • PAYE
  • Making KiwiSaver deductions — Inland Revenue
  • Levies for small, medium and large businesses — ACC
  • Employer responsibilities — Inland Revenue
  • PAYE Forms & Guides — Inland Revenue
  • Weekly and fortnightly PAYE deduction tables 2014 Guide — 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 things like:

  • Tax on schedular payments
  • Student loan repayments
  • Child support
  • Superannuation fund contributions
  • Payroll giving.

Find out more about other deduction obligations.

Tax on other types of pay

For some other types of pay, like holiday pay and bonuses, you might have to pay extra tax to Inland Revenue (IR). 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. Learn more about handling bonuses. See IR’s website for more details on lump sum payments (external link) .
  • Allowances — there are different rules for different types of allowances. See the Inland Revenue website for details of taxes on allowances. (external link)
  • Special benefits — some benefits are covered by PAYE, and others are taxed as schedular payments. See IR’s website for details of taxes on special benefits (external link) .

Paying your employees is much easier with accurate records showing what they’ve earned, what they’re owed and what leave they’ve taken. You need to keep full records for at least six years for all employees, of:

  • hours worked each day in a pay period and the pay for those hours
  • holidays and leave.

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