Payroll in New Zealand: Complete Employer Guide to Tax, KiwiSaver & Holiday Pay

New Zealand offers employers an amazing balance of strong labor protections, streamlined digital tax systems and simplified payroll processes. Yet, payroll in New Zealand comes with strict rules and responsibilities. Employers must follow precise regulations around income tax, KiwiSaver, holiday pay and employer contributions while keeping up with regular filings to the Inland Revenue Department (IRD).

This guide breaks down every essential part of payroll in New Zealand in plain terms for US companies, with expert level insights to help you remain compliant and smoothly run payroll operations. We'll also talk about how BatchTransfer can help your team do international payroll.

Legal Requirements and Minimum Wage Rules for Payroll in New Zealand

Running compliant payroll in New Zealand begins with understanding the core legal framework governing employment relationships and pay standards. Employers have specific responsibilities under New Zealand employment law, primarily enforced by the Ministry of Business, Innovation and Employment (MBIE),¹ to protect employee rights and maintain fair workplace practices.³

Mandatory Written Employment Agreements

Every employment relationship must be governed by a written employment agreement. This is a legal requirement under the Employment Relations Act 2000.² The employment agreement forms the cornerstone of payroll in New Zealand by defining how the employee’s pay, working hours, leave entitlements and deductions are managed.

At a minimum, every agreement must clearly outline:

• Pay rate: This could be a salary or an hourly wage, with any allowances or bonuses stipulated
• Pay frequency: Whether wages are paid weekly, fortnightly or monthly, the timing must be explicitly agreed upon
• Working hours: The agreement must state ordinary working hours, including start and finish times, and any flexible work arrangements if applicable
• Leave entitlements: Employees must be informed of their rights to annual holidays, public holidays, sick leave, bereavement leave and parental leave
• Deductions from pay: Employers must outline any lawful deductions, including income tax, KiwiSaver contributions, child support payments and any other permitted reductions like union fees or staff purchases

Failing to provide a written agreement before employment begins can lead to enforcement action by MBIE, including penalties, orders for back pay or personal grievance claims.

Types of Employment Agreements and Payroll Implications

There are two main types of employment agreements in New Zealand, and understanding the differences is crucial for payroll accuracy:

• Individual Employment Agreements are used for employees who are not members of a union. These are negotiated directly between the employer and employee and must meet or exceed minimum legal standards.
• Collective Employment Agreements are negotiated between employers and registered unions. When employees are union members, their pay rates, overtime entitlements and holiday pay are governed by the collective agreement, which can set industry-specific conditions above the legal minimums.

Special categories such as fixed-term and casual agreements require different payroll treatment, particularly regarding holiday pay calculations. Fixed-term employees are entitled to the same rights as permanent staff but may have holiday pay paid as an additional 8% on top of gross pay. Casual employees, who work irregular hours, also typically receive holiday pay as a percentage in each pay period rather than accruing leave.

Payroll systems must be flexible enough to handle these differences accurately, especially where multiple agreements apply within the same organisation.

New Zealand Minimum Wage Requirements

A core element of payroll in New Zealand is compliance with the national minimum wage. The minimum wage is reviewed by the government annually and changes take effect every April 1. Employers must monitor these updates to ensure they are always paying at least the legal minimum.

As of 2025, the adult minimum wage is NZD $23.5 per hour,³ which applies to most employees aged 16 and over. In addition, there are two lower categories:

• Starting-Out Wage: At 80% of the adult minimum wage (currently NZD $18.8 per hour), this applies to employees aged 16 to 19 who have been employed for less than six months or are in a recognised industry training programme
• Training Minimum Wage: Also at 80% of the adult minimum wage, this applies to employees aged 20 and over who are doing at least 60 credits per year of industry training as part of their employment

There is no youth minimum wage outside these categories, meaning most younger workers are entitled to the full adult minimum wage after six months or when training ends.

Employer Responsibilities Regarding Minimum Wage

Employers are required to pay at least the minimum wage for every hour worked, without exceptions or waiver rights. Employees cannot legally agree to be paid below the minimum wage, even if they accept lower rates verbally or in writing.

Crucially, all working time must be compensated at the minimum wage or higher. This includes:

• Mandatory training sessions, whether on-site or online.
• Team meetings or company briefings.
• Trial periods or pre-employment evaluations.
• Waiting time during shifts (e.g., downtime or standby periods).

Failure to pay the correct minimum wage can lead to penalties, repayment orders and negative publicity via MBIE’s public naming of non-compliant employers.

Minimum Wage Compliance in Payroll Calculations

Employers must regularly review their payroll systems to ensure they comply with minimum wage laws, particularly in situations where employees work irregular or split shifts, where pay includes bonuses or commissions, or when deductions are made for accommodation or goods provided by the employer.

Compliance can also become less clear when different pay periods are used, such as weekly or fortnightly cycles, which may mask underpayment over shorter timeframes. The most reliable approach is to use payroll software that automatically applies the latest minimum wage rates to all employee categories.

Businesses that outsource payroll should verify that their provider updates wage rates in line with annual government adjustments.

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Working Hours, Overtime and Holiday Pay Explained

Standard Working Hours and Overtime Rules

New Zealand law does not specify standard working hours, leaving this to be agreed upon in the employment agreement. However, working more than 40 hours per week is typically considered full-time. Overtime payments are not legally required but may be specified by the agreement or industry practice.

Employers must also ensure employees receive appropriate rest and meal breaks under the Employment Relations Act 2000. Breaching break entitlements can trigger financial penalties and legal claims.

Holiday Pay and Leave Entitlements

Holiday pay is a key part of payroll in New Zealand. Employees are entitled to four weeks of paid annual leave after 12 months of continuous employment. Pay for annual leave is based on the greater of ordinary weekly pay or average weekly earnings.

Public holiday pay applies to 11 national public holidays. Employees working these days receive time-and-a-half pay plus a day in lieu of the holiday if the holiday falls on a working day.

Other leave entitlements include:

• Sick leave: 10 days annually after six months of continuous employment.
• Bereavement leave: Minimum of three days for close family bereavement.
• Parental leave: Up to 26 weeks of government-funded parental leave with job protection.

Correct calculation of holiday pay, especially for variable-hour workers, remains one of the most common sources of payroll mistakes.

Tax Deductions And Employer Contributions In New Zealand

PAYE Tax System

The core of payroll in New Zealand revolves around Pay As You Earn (PAYE) taxation.⁴ Employers act as tax agents, deducting income tax directly from the employee's pay and remitting it to the IRD.

Employees are assigned tax codes based on factors like secondary employment, student loans or Working for Families tax credits. Employers must use these codes to calculate tax deductions accurately.

Under the PAYE system, employers must register with the IRD before paying employees. They are responsible for deducting PAYE from gross pay on every payday, using the correct tax code. After each payment, they must file an electronic payday return within two working days. PAYE payments are due to IRD by the 20th of the following month, or twice monthly for large employers. Failing to meet these deadlines can lead to fines and enforcement action from IRD.

KiwiSaver And Employer Contributions

KiwiSaver⁵ is a voluntary retirement savings scheme in New Zealand, with automatic enrolment for eligible employees. Employee contributions are deducted at a default rate of 3%, but employees can choose 4%, 6%, 8% or 10%.

Employers are required to contribute a minimum of 3% of the employee’s gross salary as employer contributions. They must pay Employer Superannuation Contribution Tax (ESCT)⁶ on these contributions, with the applicable ESCT rate determined by the employee’s annual income.

For example, an employee earning under NZD $16,800 attracts 10.5% ESCT, while those earning over NZD $84,000 attract 33%. ESCT must be accounted for in each pay cycle, and errors can result in back payments and penalties.

Child Support Payments

The IRD may issue child support payment orders requiring employers to deduct set amounts from an employee’s pay. These payments take priority after PAYE and KiwiSaver deductions.

Employers must follow IRD instructions precisely and remit child support payments with PAYE filings. Incorrect deductions or delays can lead to fines and legal liability.

ACC Levies

All employers must contribute to New Zealand’s unique no-fault Accident Compensation Corporation (ACC) scheme,⁷ which funds compensation for workplace and non-work injuries. ACC levies are based on the employer’s industry classification and total liable earnings paid to employees. The IRD collects ACC Employer Levies alongside PAYE.

Payroll Cycles and Payslip Requirements In New Zealand

Pay Cycles

Employers are free to choose weekly, fortnightly or monthly pay cycles, provided this is agreed upon in the employment agreement. The most common in New Zealand are weekly and fortnightly.

Payslip Requirements

Payslips are not legally mandatory in New Zealand, but providing them is widely regarded as best practice for promoting payroll transparency. A well-prepared payslip gives employees a clear breakdown of their earnings and deductions, including gross pay, PAYE deductions, KiwiSaver contributions, ACC levies and any child support payments if applicable. It also details holiday pay accruals, employer contributions and any other authorized deductions.

Most businesses use payroll software to generate payslips automatically, with digital payslips becoming the standard across industries due to their convenience and easy access for employees.

Record-Keeping Obligations

Employers must retain all wage, time, and leave records for at least six years. This includes employment agreements, payslips, holiday and sick leave records, and PAYE filings. Records must be readily accessible for audits by MBIE or IRD.

Managing Payroll In New Zealand: Options And Tools

In-House Payroll

Small businesses with few employees often manage payroll in-house using cloud-based software like Thankyou Payroll⁸ or Employment Hero.⁹ Benefits of in-house payroll include direct control and easier integration with other business systems. Employers must stay current on legislative changes or risk costly errors.

Outsourced Payroll Providers

Medium and large businesses frequently outsource payroll to specialist providers or accountants. Outsourcing helps ensure compliance with PAYE, KiwiSaver, holiday pay and employer superannuation contribution tax obligations.

Outsourcing can also simplify dealing with child support payments, IRD submissions and leave entitlements, especially for employers with limited administrative resources.

Common Payroll Mistakes And How To Avoid Them

Mistakes in payroll in New Zealand can lead to costly IRD penalties, employee disputes and reputational damage that affects long-term business stability. Some of the most frequent payroll errors include:

• Miscalculating holiday pay, especially for employees with irregular hours or fluctuating earnings, can lead to underpayments or disputes
• Incorrectly applying Employer Superannuation Contribution Tax (ESCT) rates on employer contributions can result in tax shortfalls or compliance issues
• Late PAYE filings, which automatically trigger penalties from the Inland Revenue Department, may lead to further audits
• Failing to deduct or remit child support payments creates legal obligations and potential fines for the employer
• Misclassifying employees as contractors can result in unpaid tax, holiday pay and leave entitlements, along with financial penalties

Employers can avoid these mistakes by following key best practices:

• Use approved payroll software that automates tax and holiday pay calculations to reduce human error
• Conduct internal payroll audits at least quarterly to verify that deductions, contributions and leave balances are calculated correctly
• Stay informed on annual updates, including changes to minimum wage rates, tax thresholds and leave entitlements
• Seek professional payroll advice for more complex arrangements, especially for businesses with casual, part-time or international employees

Businesses that adopt these measures can prevent costly errors, ensure compliance with employment laws, and build a more reliable payroll process.

Final Thoughts

Payroll in New Zealand is straightforward but leaves no room for error. Employers must follow every rule, from issuing compliant employment agreements to deducting the correct income tax, calculating KiwiSaver contributions, applying the right employer superannuation contribution tax rate and paying holiday entitlements properly. They must also stay on top of ACC levies and deduct child support payments when required.

Small mistakes can quickly become costly, especially with frequent updates to minimum wages, tax thresholds and leave entitlements. Employers managing payroll in-house need strong systems, accurate records and up-to-date payroll software to avoid errors.

FAQs About Payroll in New Zealand

What Taxes Must be Deducted From an Employee’s Pay?

Employers must deduct income tax, ACC levies, child support payments and KiwiSaver contributions from gross pay and file them with the Inland Revenue Department.

How Often Do Employers File PAYE With IRD?

Employers must file electronic payday reports within two working days of paying employees and pay PAYE and related deductions by the 20th of the following month.

What is the Employer Superannuation Contribution Tax?

ESCT is a tax on employer contributions to KiwiSaver. Rates vary based on employee earnings, and it is calculated and deducted by the employer each pay cycle.

Are Payslips Mandatory in New Zealand?

Payslips are not legally required but are strongly recommended. They help prevent misunderstandings and disputes about the employee's pay and deductions.

What Are Employer Responsibilities for Child Support?

Employers must deduct child support payments from employee wages if directed by the IRD and file them with other PAYE obligations.

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Sources

1.Employment Standards Legislation Act – MBIE New Zealand
2.Employment Relations Act 2000 – New Zealand Legislation
3. Minimum Wage Increases from 1 April 2025 – Business.govt.nz
4. Tax Codes and Tax Rates – Inland Revenue NZ
5. KiwiSaver – Inland Revenue NZ
6. Employer Superannuation Contribution Tax (ESCT) – Inland Revenue NZ
7. Accident Compensation Corporation (ACC) – New Zealand
8.Thankyou Payroll – New Zealand
9. Employment Hero – HR and Payroll Software