Money is one of the main reasons why people work, so itís important to get it right when you pay them. There are various laws that relate to salary and wages, and you should make sure that youíre familiar with them. You must know how you have to pay employees, what deductions you can, canít, and must make from their pay, and know about the minimum wage and the records you have to keep.

Note that the law can and does change quickly. The latest on pay legislation can be found on www.ers.govt.nz.

Employees have the right to be paid in cash (unless they work for the Government or a local authority) under the Wages Protection Act 1983. However, making cash payments can be time-consuming and less safe. Itís fine to pay your employees by cheque, direct credit, or money order, but only with their signed agreement first.

You should cover the method and frequency of paying wages in the employment agreement, or get the employee to sign an authorisation. There is no legally required frequency for paying wages. The law requires wages to be paid ëwhen they fall dueí. Fortnightly is common practice in New Zealand.

If payday falls on a public holiday, you should pay employees on the last working day before the public holiday. Youíre not required by law to give your employees a pay slip, but many employers choose to do so.

Under the Employment Relations Act 2000, you have to keep wages and time records for all your employees for at least 6 years (in case someone claims you underpaid them) and at least 7 years under tax law. You must include:

You must pay your employees at least the minimum wage or else you will be in breach of the Minimum Wage Act 1983. It doesnít make any difference whether they are full-time, part-time, casual, a homeworker, paid by commission, or on a piece rate.

You can get the current minimum wage rates from the Employment Relations Service. Website: www.ers.govt.nz. Tel: 0800 800 863.

The Equal Pay Act covers more than just pay ñ itís illegal to treat someone less (or more) favourably based on their gender when deciding employment terms, work conditions, fringe benefits, training, promotion, and transfer.

Youíre only allowed to make certain deductions from pay and if any are unauthorised, you may be breaching the Wages Protection Act 1983. The allowed deductions are:

The ACC earner levy is paid on top of the tax rates and is automatically added to the rates in the IRDís PAYE deduction tables.

PAYE is the system set up by the Income Tax Act for taxing the income of employees. You must deduct it from most payments you make to employees, and pay it to the IRD. It applies to all wages, salaries, and extra payments, (eg bonuses and lump sums).

Make sure that all your employees fill in an IR330 form ñ this will provide the information you need to correctly deduct PAYE. With your PAYE payment to IRD, you must file an employerís monthly schedule (IR348), and a remittance certificate (IR345 or IR346).

Keep deduction records. Itís illegal to use PAYE deductions for anything other than paying them to the IRD. You can be fined if you donít make proper deductions, or donít account for them to the IRD.

Student loan repayments are made through PAYE. If an employee gives you a tax code ending in ëSLí, you have to make deductions from their pay and lump sum payments.

Student loan deductions donít have to be made from the earnings of casual agricultural employees, election day workers, people on withholding payments (eg contractors), or those on the ëno declarationí rate.

You must deduct child support from an employeeís pay if the IRD tells you to. They will send a notice telling you the employeeís name and IRD number, the date when deductions must start, and their frequency and amount. Child support takes priority over all other deductions except PAYE.

When paying certain contractors you have to make withholding tax deductions. The IR330 form lists the types and rates of withholding payment deductions. Also include these payments on your employerís monthly schedule.

If you give your employees benefits like low interest loans or a company car that they can use for personal use, you must deduct fringe benefit tax (FBT). The IRD form for FBT is IR420.

When on paid annual leave, the employee must be paid the greater of their ëordinary weekly payí and ëaverage weekly earningsí during the year. See our fact sheet on holiday pay.

When an employee leaves, you must calculate their final pay, including bonuses, allowance, and commission.

If theyíve worked for you for less than a year, you must add holiday pay of 6% of their gross earnings to their final pay (this will be 8% from 1 April 2007). If you let them take annual leave on pay during the first year it will be less than that, and you will need to work out how much money they are owed.

If theyíve worked for over a year, include holiday pay for any untaken annual leave. The days of untaken annual leave is added to their last day, and they must be paid for any public holidays that fall within that period.

Important: This is not advice. Clients should not act solely on the basis of the material contained in this fact sheet Items herein are general comments only and do not constitute or convey advice per se. Changes in legislation may occur quickly. We therefore recommend that our formal advice be sought before acting in any of the areas. We believe the contents to be true and accurate as at the date of writing but can give no assurances or warranty regarding the accuracy, currency or applicability of any of the contents. This fact sheet is made available to our clients as a helpful guide for their private information. Therefore it should be regarded as confidential and should not be made available to any person without our prior approval.

Copyright: No unauthorised copying permitted

HF180

Last updated August 2004