Running payroll in New Zealand

The social security system in New Zealand is different from what employers are used to in Europe. There is no legal obligation to contribute to the statutory pension fund, but everybody living and working in New Zealand must pay so-called ACC levies which fund compensation for occupational and non-occupational accidents. The number of necessary registrations with regard to payroll is lower than in most European countries. 

There is no legal requirement to set up a local legal entity or branch in order to hire employees in New Zealand, but foreign employers should be aware that certain business activities could lead to their business being classified as a permanent establishment. Regardless of whether the company intends to establish a presence in New Zealand or not, it is mandatory to register as an employer with the Inland Revenue Department (IRD). This step is necessary for withholding PAYE deductions from salaries and wages. The registration can either be done online via the myIR system or by handing in the filled out employer registration form (IR334). 

Another necessary registration procedure is to sign up for so-called ACC levies. The ACC (Accident Compensation Company) is the national insurance provider for both work and non-work accidents. Levies must be paid by both employee and employer. 

There are no further social security registrations which need to be completed as the only nation-wide social security scheme is the KiwiSaver, in which new employees are automatically enrolled. Setting up a local bank account is not required.

Income tax on employment income is assessed via a system of progressive tax rates. Possibilities for tax deductions are limited and there is no standard tax allowance. Social security mainly consists of a universal accident insurance and a retirement scheme. However, the latter is not mandatory. 

Tax considerations

Employment income in New Zealand is subject to tax from the first Dollar earned, i.e. there is no tax-free or personal allowance. Tax rates are progressive and range from 10.5% to 39%. For more details, please refer to the table below.  

An employee’s taxable income includes salaries and wages, bonuses, pension gratuities and allowances received from their employer. There are no special tax deductions or allowances available for employment income - except for charitable donations which are deductible. Medical expenses, superannuation or other insurance contributions are not deductible, but there are tax credits for families with dependent children. Fringe benefits are subject to special taxation rules. 

New Zealand tax residents pay tax on their worldwide income, while non-residents are only taxed on income sourced in New Zealand. However, there are tax credits available for income tax paid abroad which can be offset against the outstanding amount of tax to be paid in New Zealand. Criteria for tax residency in New Zealand include: 

• Permanent place of residence in New Zealand

• Stay of more than 183 days in New Zealand within any given 12-month period 

Expatriates coming to work in New Zealand or former residents who return to the country after a period of more than 10 years can claim so-called transitional resident status. This tax status allows them to only pay tax on the income they earn in New Zealand for a 48-month period, i.e. foreign income is exempt from income tax.

Tax withholding and reporting 

New Zealand operates a PAYE (pay as you earn) system. Employers are thus responsible for withholding income tax from employee salaries at source. The frequency with which the withheld amounts must be submitted to the IRD depends on whether the employer is classified as small or large withholders: 

• Large PAYE withholders: more than NZD 500,000 in PAYE remittance per year

• Small PAYE withholders: less than NZD 500,000 in PAYE remittance per year

Small employers must submit withheld income tax once a month. The due date for the payment is the 20th of the month following the respective pay period. Large employers are required to remit income tax on a semi-monthly basis. The first payment is due on the 20th of each month, covering the PAYE withholdings for the first 15 days of the month. The second payment is due on the 5th of the following month and covers income tax payments due from the second half of the previous month. 

Employers whose annual PAYE payments exceed NZD 50,000 must submit payroll-related information to the IRD within 48 hours after the employee’s pay day - electronic filing is mandatory. Otherwise, they have 10 days (starting from the employee’s pay day) to submit their payroll information.

The tax year runs from 1 April to 31 March. Employees are only required to file an annual tax return if they receive income from sources other than employment. Married taxpayers must file separate returns. Tax returns must be submitted by 7 July. 

Social security contributions

There are no compulsory social security contributions in New Zealand. The only large-scale social security scheme is the so-called KiwiSaver pension system. Although employees starting a new position are automatically enrolled in this voluntary pension fund, they can opt out of it. 

Employers are only obligated to contribute towards the employee’s KiwiSaver scheme if the employee decides to be covered by and contribute to the scheme. The minimum contribution level for both employee and employer is 3% of the employee’s wages. However, employees can choose to contribute at a higher rate. The available options are currently 3%, 4%, 6%, 8% and 10%.  

Alternatively, employers and employees can contribute towards an officially approved superannuation fund. The difference is the recipient of the respective payment. While contributions to the KiwiSaver scheme need to be submitted to the IRD along with the withheld income tax for the respective pay period, superannuation fund contributions are paid directly to the scheme provider.  

It should be noted that employers have to calculate and pay an employer superannuation contribution tax (ESCT). The rates depend on the employee’s salary and on the annual employer contributions towards the selected pension fund scheme. 

In addition to a superannuation/KiwiSaver scheme, both employee and employer pay so-called ACC levies. ACC levies are payable by all New Zealanders. Payments go towards a statutory-based fund covering them from occupational and non-occupational accidents and diseases. 

The employee share of the levy covers non-occupational risks and is currently (March 2022) set at NZD 1.21 per NZD 100 earned - due to increase to NZD 1.27 per NZD 100 from April 2022. The levy is deducted from wages and salaries during the payroll process. The amount of the levy payable by the employer depends on several factors, notably the business industry classification, the amount of wages/salaries paid and the claims history of the business. The average levy for businesses is NZD 0.67 per NZD 100 of wages.

Employees in New Zealand are entitled to various benefits. These include:

• Annual leave and public holidays: 4 weeks, plus 11 public holidays

• Maternity leave: up to 26 weeks of so-called primary carer leave; additional 10 days of special leave are available for pregnancy-related medical appointments (unpaid)

• Paternity leave: 1 week or 2 weeks of unpaid partner’s leave (depending on length of service) to be taken in the timeframe of 21 days before and 21 days after the child’s birth; mothers can transfer some of their primary carer leave to the child’s father 

• Parental leave: up to 52 weeks of extended leave (including 26 weeks of primary carer leave)

• Sick leave: 10 days of paid sick leave per year after 6 months of service (up from 5 days since July 2021), unused sick leave can be accumulated (up to a maximum of 20 days)

For more information on employee benefits and other employment requirements in Brazil (including severance pay and termination procedures), check out our Global Hiring Guide.

Currently (as of March 2022), the hourly minimum wage is fixed at NZD 20.00. From April 2022, the national minimum wage will be set at NZD 21.20 per hour - NZD 16.96 for trainees. There is no legal obligation for employers to compensate overtime work with additional pay, but employees who receive wages instead of a fixed salary are usually remunerated for additional hours at a higher rate which is fixed in the individual employment agreement.

However, the law mandates that employers must pay employees working on public holidays at a rate of 150% of their usual wages. Annual bonus payments (e.g. 13th month pay) are not legally required but performance-based bonuses are quite common.  

There is no legal regulation of pay periods and pay frequency in New Zealand. It is therefore up to the employer to decide how often they want to process their payroll.

It is common to pay employees either once a week, once every fortnight or once a month. In any case, the pay frequency as well as the pay day should be fixed in the individual employment agreement or in the company’s internal workplace policy. Accepted payment methods are cash, check, money order, postal order and bank transfer. Cash payments should be accompanied by a signed record confirming the payment. 

Although there is no legal obligation to provide employees with a payslip, most employers do so anyway as payslips are frequently requested by employees needing proof of income. Payroll-related records such as wages and time records should be kept for at least 7 years.