What global businesses need to know about payroll in New Zealand
New Zealand is probably best known in a global business sense for its sheep farming, and the quality of its lamb. But you may not be aware that agriculture makes up less than 7% of its economy by GDP.
Visit the ‘Land of the Long White Cloud’ and you’ll find not only a beautiful landscape, but also a highly-developed service-driven marketplace. It’s an advanced nation of just over five million people, where education levels among the workforce are high, economic stability is excellent, and trade links with the rest of the world are just as good (in no small part thanks to being an English-speaking country).
New Zealand largely shut itself off from the rest of the world during the COVID-19 pandemic, but is now fully open once again and just as welcoming to foreign businesses as it always was. However, its payroll and employment requirements aren’t exactly straightforward: this guide sets out the key facts to consider before planning your new operation there.
Getting Started
New Zealand is known as one of the easiest countries in the world to start and run a business, and has invested heavily in making the set-up process as fast, smooth, and digitized as possible. For example, choosing a business name can be done online, as can registering with several government agencies using a single RealMe login, getting a New Zealand Business Number, and registering for Goods and Services Tax.
There is no minimum share capital involved in setting up a company in New Zealand, but there is a company registration fee of NZD 150 (approximately £70; $90; €85).
Companies should check with local authorities about the rules in their relevant area before they set up, especially with regard to certain lines of business in particular geographical locations. All businesses will require a bank account, an accountant, and a lawyer, although these are easily found for incoming foreign enterprises. However, setting up a bank account in New Zealand requires a representative of the company to be present in person.
Employment Considerations
Written employment contracts are mandatory in New Zealand and must comprehensively stipulate every element of the employer and employee’s responsibilities. Collective bargaining is uncommon and workers will negotiate their own contractual arrangements in accordance with their skill level and previous experience.
There is no fixed working week in New Zealand, but the arrangements for individual employees should be specified in their contract. Working around eight hours a day and 40 hours a week, or somewhere around these figures, is the most common agreement. Similarly, there are no fixed rules around overtime, save for paying employees 150% of the normal rate plus a day off in lieu if they work public holidays. Most employers will generally offer overtime rates of between 150% and 200% of normal pay in contracts.
Probation periods can run for anything up to six months, and should be defined in employment contracts. A period of at least three months is standard in most cases.
Compensation, Bonuses and Severance
As in many other countries, the minimum wage rate in New Zealand has risen a number of times in recent years. The latest announced increase is in effect from April 1 2024, at NZD 23.15 per hour (approx. £11.20; $14.00; €13.00). These rates are 20% lower for employees who are inexperienced or are in training.
Bonuses are awarded in some situations, but it’s important to note that different tax rules apply for employees depending on the frequency: regular bonuses are taxed in the same way as their normal salary, whereas annual bonuses or retirement payments are treated as lump sums.
There are no set requirements around notice periods for termination, but notice periods should ideally be specified and agreed upon in contracts of employment; a period of between two and four weeks is most common. The same applies to severance pay, although employers must ensure they pay employees up to the end of their period of employment, plus for any annual leave that isn’t used.
Tax and Social Security
Income taxes are generally withheld by employers and paid to the Inland Revenue on a Pay-As-You-Earn (PAYE) basis. New Zealand has five progressively higher rates of income tax: the lowest of 10.5% applies to the first NZD 14,000 of annual income (approx. £6700; $8500; €7900); the highest of 39% was introduced recently and applies to all income over NZD 180,000 (approx. £87,000; $109,000; €101,000).
The corporate tax rate in New Zealand is 28%. The Goods and Services Tax (GST) rate is 15%, and is applied to most goods and services bought in New Zealand and some bought outside, but businesses are able to claim back the GST they’ve paid out.
There is only one standard social security contribution, which is for accident compensation, at 1% employer and 1.39% employee. However, employers and employees are encouraged to contribute to the KiwiSaver program, a voluntary scheme that helps employees save for their retirement or for help with buying their first home. Employees can choose to contribute 3%, 4%, 6%, 8% or 10% of their pre-tax salary, with employers contributing at least 3%. The New Zealand government adds 50 cents for each dollar an employee pays in, up to a maximum government contribution of NZD 521.43 per year (approx. £250; $315; €295).
In addition, employees with student loans are required to pay through their employee wages, which means employers have to arrange to have the funds withheld and transferred to the appropriate parties.
Holidays and Leave
Every part of New Zealand marks 12 days of public holidays each year. Eleven of these are observed nationally, while each province individually observes its own anniversary day. Holidays that don’t fall on a Monday or a Friday are regularly moved to the nearest Monday for public holiday purposes.
Paid leave entitlement is 20 days per year, once an employee has completed one year of service. Unused leave can be carried over into the following year, and should also be paid off if employment is terminated. Fixed-term employees on contracts of less than 12 months in length don’t receive any leave as such, but receive an 8% holiday pay bonus instead.
New Zealand’s rules around maternity and parental leave are relatively complex. Known as ‘primary carer leave’, the entitlement is 26 weeks at full pay, up to a cap of NZD 661.12 per week (approx. £320; $400; €375). This can be applied to new mothers from the time of birth, and to any permanent primary carer of a child under the age of six. Partners can also receive two weeks of unpaid leave as long as they have worked for their employer for at least a year. On top of this, there are a range of other entitlements that can extend the total amount of parental leave granted to 12 months.
At the time of writing, the New Zealand government is working through new legislation to further expand entitlements in this area, including the introduction of an additional four weeks’ state-funded parental leave. It’s therefore important to watch for new developments in this area closely.
Sick leave entitlement is a maximum of ten days per year, for employees who have at least six months’ service. Sick leave can be carried over, up to a maximum of 20 days in any one year.
In Summary
New Zealand is an extremely welcoming place for foreign investment. However, as this guide ably demonstrates, there’s no getting away from the fact that its payroll and employment regulations are extremely complex in a number of areas. To ensure your compliance, and to keep up with upcoming regulation changes, you may want to consider teaming up with a global payroll partner, and tapping into their solutions and expertise.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.