Understanding Payroll in New Zealand: What Global Companies Need to Know About New Zealand Payroll
Jun 13, 2017
Mention New Zealand to most people, and they may instantly picture a scene from The Lord of the Rings or The Hobbit. The franchise has been the best unpaid advertisement for the country, helping to improve its economical standing within the last decade. The country is dominated by the free market, and its major industries are tourism, manufacturing, and agriculture. It has a GDP of $173.8 billion and only 4.6 million citizens.
When it comes to payroll regulations, there are a number of considerations which make New Zealand different than other countries. Payroll consists of the general deductions for taxes, but there are also extenuating circumstances for things like student loans and Kiwisaver deductions. If you do not make all of your payments, you risk hefty fines for late payments. Without the right help from a payroll provider, all new companies risk being buried under legal paperwork and financial penalties.
A business leader first needs to decide if they are a sole proprietor, a partnership (typically reserved for the agriculture industry), or an LLC. Every business will have to check with their local council before they start establishing any physical presence in New Zealand. The rules differ across the country depending on where you are. For example, you can not open an auto repair shop in a residential area. All companies should check the company name before registering, and set up an IRD number for general taxes.
Certain companies will also need to register for GST (Goods and Services Tax.) Companies will need a bank account, an accountant, and a lawyer too. Thankfully, banks and professionals are accommodating to business people regardless of where they're from. Any major bank will be able to handle your requests, and it should not take more than two weeks if you have the appropriate paperwork. Please note that a legal representative of the company will need to be present to set up a corporate bank account in New Zealand.
Employment Laws/Employment Rights
There are no official working hour rules in New Zealand, but business hours are generally 8:30 a.m. to 5 p.m with a 40 hour limit per week. Lunch is normally a half hour long. All employees must have written contracts that stipulate the terms of their employment. These contracts spell out practically everything about the employee/employer relationship. Very few industries are subject to collective bargaining in New Zealand, so workers negotiate on behalf of themselves based on their skill level. Overtime pay is not required in New Zealand, but is typically given to employees. The exact wages (e.g., time a half, double time) are worked out in the contact.
Trial periods are about 90 days, and are typically instituted by most employers directly after hiring. Longer probationary periods are allowed in New Zealand, but must be negotiated by both employee and employer. Employees must be paid during this time, and their rights cannot be violated. There are no set time limits, but the length of probation should be reasonable to the job and circumstances.
Compensation, Bonuses, Severance
Adult workers must be paid at least $11.25 ($15.75, £6.40, €7,23)/hour. Workers who are younger or inexperienced can be paid about $9 ($6.48, £5.11, €5,78)/hour. There are no set rules when it comes to raises, though in the past the numbers have been historically low (e.g., 1 to 2% a year). Companies have recently started to rethink their compensation packages for their most valuable employees. New Zealand does not have official termination policies. If an employee receives severance pay, it is due to the terms being written in the employee contract. All wages and future raises or bonuses are typically negotiated before an employee's first day on the job.
Personal income tax in New Zealand is based on wages, anywhere from 10.5% for low income earners to 33% for the upper bracket. Corporations are taxed at 28%. There is no social security tax, but there are GST taxes that are 15% of all goods and services that are sold in New Zealand. The PAYE (pay as you earn) system ensures that taxes are deducted from employee income automatically.
Kiwisaver is New Zealand's retirement savings program, and all employers need to offer it to their employees. Contributions are taken out from the source, making a global payroll solution helpful to those unfamiliar with this program. 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.
Leave – Sick, Maternity, Vacation, Absence, Holidays
The government pays for expectant mothers (or the primary caregiver) for up to 18 weeks of maternity leave. General holiday time is 4 weeks every year, with 10 paid public holidays. For most employees, they receive 5 days of sick time a year, and an additional 5 days after working for the company for 12 months. For extended leave due to a work-related accident, the employer must cover the first week of pay at 80% of the employee's salary.
|Date||New Zealand's Public Holiday Schedule|
|January 1st||New Years Day|
|January 2nd||Day after New Years Day|
|February 6th||Waitangi Day|
|Friday before Easter Sunday||Good Friday|
|Monday after Easter Sunday||Easter Monday|
|April 25th||Anzac Day|
|First Monday in June||Queen's Birthday|
|Fourth Monday in October||Labor Day|
|December 25th||Christmas Day|
|December 26th||Boxing Day|
New Zealand offers many quirks to its payment and tax structures, and an international payroll solution can help make these extra considerations a lot easier to handle. This beautiful country has a lot to offer new business owners, both in terms of natural beauty and in terms of talent. It is highly recommended that new businesses have someone they can turn to for advice so they're not penalized for failing to meet one of the many payroll regulations.
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.