Understanding Payroll in New Zealand: What Global Companies Need to Know About New Zealand Payroll
Known as the Land of the Long White Cloud - or Middle Earth, if you’re a fan of Lord Of The Rings, which was filmed there - New Zealand is a beautiful country that punches above its weight in economic terms. Supported by its strong global standing in both tourism and agriculture, its population of around five million enjoy a good standard of living and earnings along with the stunning scenery.
As an English-speaking nation and a member of the Commonwealth, New Zealand has good links with other economies all over the world that belie its geographical location, tucked away in the South Pacific. However, its long-term economic future is unclear: the New Zealand government’s isolationist approach to tackling COVID-19 meant the country was largely shut off from the rest of the world for most of 2020, and potentially longer. The long-term impact of this approach on international trade remains to be seen.
Hopefully, New Zealand will return to being a popular destination for incoming businesses as it was pre-pandemic. And if so, there are some important pieces of payroll-related information to know, particularly regarding student loans and deductions for the Kiwisaver retirement program. This guide covers the basics around payroll in New Zealand:
As of May 2019, the World Bank ranked New Zealand top of its Ease Of Doing Business survey overall, and first for starting a business. The NZ government has online portals where the process of reserving a company name and incorporating a business can be completed within just a few hours. For the more popular choice of limited-liability companies, the fee payable is NZ$115 plus Goods and Services Tax at 15%, making a total of NZ$132.25 (approximately £70; US$90; €75).
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. Companies also need to register with the Inland Revenue to receive a tax number, and may also need to register for GST. 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.
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.
New Zealand’s rules around working hours are minimal compared to many other countries. A standard working week is 40 hours, spread over five days (Monday to Friday), and working days are normally 8:30am to 5pm with a 30-minute lunch break. Although this is the accepted standard, these hours aren’t enshrined in law.
The same principle applies for overtime: there is no obligation for employers in New Zealand to pay anything over the normal rate for hours worked in excess of 40 per week, but most employers will voluntarily offer 150% or 200% rates in contracts. The exception is when employees work on public holidays which fall on days they would normally be expected to work: in this case, employees are entitled to 150% of rate plus a day off in lieu.
Compensation, Bonuses and Severance
As of April 2020, New Zealand’s national minimum wage rates were set at NZ$18.90 per hour (approx. £10; US$13; €11) or NZ$756 per week (approx. £390; US$520; €440). 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 be specified and agreed upon in contracts of employment. 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 four progressively higher rates of income tax: the lowest of 10.5% applies to the first NZ$14,000 of annual income (approx. £7200; US$9500; €8100); the highest of 33% applies to all income over NZ$70,000 (approx. £36,000; US$48,000; €40,500).
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 of them, but businesses are able to claim back GST that they have paid out.
Employers and employees generally don’t make social security contributions, however, both parties are encouraged to contribute to the KiwiSaver program. This voluntary scheme 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 NZ$521.43 per year (approx. £270; US$360; €300)
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
Employees in New Zealand are entitled to four weeks’ paid leave each year. This entitlement can either be gradually accrued through the year, or given as an annual allocation that starts on the anniversary of an employee joining a company, as defined in an employment contract. New Zealand has ten days of public holidays each year: employees are paid extra for working them if they would normally be expected to work that day as part of their usual schedule (see ‘Employment Considerations’ above).
New Zealand’s rules around maternity and parental leave are relatively complex. The entitlement for paid parental leave was increased from 22 weeks to 26 in July 2020, and this is applied to any permanent primary carer of a child under the age of six. Partners can 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.
Sick leave entitlement begins to accrue after six months of service, at a rate of five days per 12 months. This entitlement accumulates, meaning any unused sick leave can roll on to future years.
Many of New Zealand’s payroll and employment requirements are fair and straightforward, but a number of others like KiwiSaver, GST and parental leave require careful monitoring and management in order to ensure compliance. So if your business is considering an expansion into New Zealand, the services and expertise of a global payroll provider should help you get up and running quickly, and keep you on the right side of all the rules and requirements.
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.