Guide 101 - The Basics of Payroll in New Zealand

In recent years, New Zealand has been tagged as one of the countries with the most globalized economies. One of the key reasons for this tag is the rising number of business establishments in different sectors.

In New Zealand, whether businesses employ one person or one hundred people, the same rule applies when it comes to payroll –

The employers are responsible for withholding income taxes, Kiwi Saver contributions from employee’s pay. They also need to pay the Employer Superannuation Contribution Tax (ESCT) on all employer contributions.

Income Taxes

All business owners with one or more employees must register themselves as an employer, withhold income taxes from the employees and remit these taxes withheld under the PAYE (Pay As You Earn) system of New Zealand, which is administered by the Inland Revenue Department (IRD). The progressive income tax system of New Zealand levies tax on a portion of an employee’s income based on the tax code opted by the employee and the rate applicable to their corresponding tax codes.

ACC Earner’s Levy:

All the employees are generally covered by the ACC (Accident Compensation Corporation). It includes a working safer levy (abbreviated as WS) and employer work account levy (abbreviated as EMP). This needs to be paid along with the PAYE of the employee for the particular pay period.

• The EMP is remitted to the work account for funding replacement income for the employees who experienced work-related accidents and injuries.
• WS supports the activities of WorkSafe and injury prevention across the country.
• The earner’s levy is charged for covering the cost of compensation and rehabilitation following non-work-related injuries.

Kiwi Saver Contributions

Employers are required to withhold tax contributions to the Kiwi Saver retirement system for the employees that are covered by Kiwi Saver. Generally, this is referred to as a voluntary savings scheme designed for helping employees in New Zealand to set up their retirement plans.

Fringe Benefit Tax

This tax is paid by the employers on the basis of benefits employees receive because of their employment, including the benefits provided via someone other than the employer, such as the provision of goods and services, insurance, annuation funds, subsidized transport and others.

ESCT

Employers need to withhold ESCT from the contributions they pay into the retirement account of an employee. Employer superannuation contributions cover cash contributions to a superannuation fund that was paid by the employer for the benefit of the employee. This includes Kiwi Saver contributions as well as contributions to employee retirement funds outside the Kiwi Saver program.

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Important things to consider while paying employees in New Zealand

Below, we’ve rounded up the most important things that businesses need to consider for paying their employees in New Zealand:

Start off on clear grounds

Before processing payroll, employers should ensure all the employees are issued a contract of employment. This is for protecting both the employer and the employee and outlining the terms of employment. It will serve as the basis for their entitlements.

Stay abreast of changing minimum wage rates

As the minimum wage rate in New Zealand changes annually, it is crucial for employers to always stay up to date with the rates. The minimum wage rate of experienced employees and the ones just starting out or trainees may differ. Usually, it is lower for the latter category. However, before the employer puts an employee in the latter category, they should double-check if the employee fits under that criterion before paying them at a lower rate. Otherwise, the employer will have to bear the consequences in the long run.

Understand how to include allowances and benefits

There are no specific legal entitlements to allowances. However, the employer must note all the allowance payments made as a part of their records. Allowances may be paid to the employees for various reasons like special responsibilities, as compensation for challenging tasks or as reimbursed costs incurred on the behalf of the employer. The employer needs to check with Inland Revenue Department as to which allowances are taxable and non-taxable.

Adhere to all record-keeping requirements outlined by Employment New Zealand

All payroll-related records must be kept safe for a period of seven years, even if employees have left the organization. Otherwise, the authorities may levy a penalty up to the greater of $100,000 or three times the amount of the financial gain made.

Employment New Zealand states that the information should include personal details of the employees and everything related to their pay, working hours, leaves, Kiwi Saver contributions, and more.

Though we have covered the basics of payroll in New Zealand in this blog, the problem that most employers face is – how to stay compliant with such complex payroll regulations? Factoring in and recording the correct information can be one of the major challenges that businesses of all sizes face. The all-in-one solution to cope with all these challenges is to outsource payroll processing to experts.

Ramco’s comprehensive payroll solution, available on Cloud, on Premises and as Managed Services, provides automated payroll processing while helping businesses stay compliant with the regional statutory requirements. Thus, enhancing efficiency across the entire payroll process. The solution offers features like a touchless attendance management system, an automated helpdesk through chatbots, role-based dashboards and more. Our innovations are being driven by advanced technologies like artificial intelligence, machine learning and RPA, making us a preferred payroll outsourcing service provider across the world.