Payroll Services in New Zealand

The compulsory employer contribution is 3.5% of gross salary or wages from 1 April 2026, up from 3%, with a further increase to 4% legislated for 1 April 2028. Both changes came out of Budget 2025. The employee minimum moved on the same date and anyone sitting on 3% was moved to 3.5% automatically; employees already electing 4%, 6%, 8% or 10% were unaffected, and the default for a new employee who does not choose is now 3.5%. Two related changes landed with it. Compulsory employer contributions extended to 16- and 17-year-olds who are already members – though note they are not auto-enrolled, so the obligation is to contribute for an existing member rather than to enrol anyone. And the government contribution was halved to 25 cents per dollar with a maximum of $260.72 a year and no entitlement above $180,000 of taxable income; that one is paid by Inland Revenue direct to the scheme and appears on no payroll line, but employees ask about it constantly.

A new mechanism arrived with the rate rise and it is the one most likely to be mishandled. Because 3% no longer exists as a standing election, members who want it must apply for a temporary rate reduction, which runs for three months to a year, can be taken back to back, and can be revoked early. It cannot be held at the same time as a savings suspension. The critical payroll point is that while a reduction is in force the employer may match down to 3% as well – the contribution floor drops with the employee. And it expires: Inland Revenue notifies the member about thirty days beforehand and the rate reverts to 3.5%, so an employer that does not diary the expiry silently keeps contributing 3% against a 3.5% obligation. On a job change the employee has to show the new employer the acceptance letter for the reduced rate to continue at all.

ESCT is where international cost models go wrong, so it is worth being exact. New Zealand taxes the employer’s superannuation contribution on five tiers – 10.5% to $18,720, 17.5% to $64,200, 30% to $93,720, 33% to $216,000 and 39% above that – and the tax is deducted from the contribution rather than charged on top of it. On a $100,000 salary the 3.5% contribution is $3,500; an employee in the 33% band means $1,155 of ESCT, the scheme receives $2,345, and the employer’s cost remains $3,500. Employer cost is 3.5% of gross, full stop. It is not 3.5% multiplied by 1.33, and budgeting it that way overstates New Zealand employer cost by about a third.

The tier itself is set from the prior year, and this is the classic configuration error. For an existing employee the rate comes from last year’s salary plus last year’s employer contributions, is fixed on 1 April, and is held for the whole year whatever happens to their pay – so an employee who doubles their salary in May stays on the old lower rate until the following April, which is correct and looks like a bug. The mirror-image failure is worse: a new employee must be rated on an estimate of the current year, but a system asked what this employee earned with us last year answers nil and defaults them to 10.5%. A senior hire who should be on 39% gets 10.5% for their entire first year. And a third-order trap specific to 2026/27 – the tier threshold is salary plus the gross employer contribution, so when the contribution rose from 3% to 3.5% some employees crossed an ESCT band for that reason alone. Any employer that recalculated ESCT from salary alone on 1 April 2026 has part of its workforce on the wrong rate.

Employer statutory cost in New Zealand is about 3.7% of salary for an office-based employer. There is no employer social security of any kind – no payroll tax, no employer social insurance, no state pension contribution. The whole of it is KiwiSaver at 3.5% plus two ACC levies: the Work levy, which depends entirely on what the business does, and the Working Safer levy at a flat 8 cents per $100 of liable earnings, which funds WorkSafe New Zealand rather than ACC. Both are capped at liable earnings of $156,641 per employee, so the effective rate drifts down above that – 3.71% at $100,000 and 3.61% at $300,000.

The Work levy is the variable, and the average is close to meaningless. ACC sets it by classification unit, an industry code reflecting injury risk, and for 2026/27 the average is 69 cents per $100 while the actual range runs from 2 cents for computer systems design to $5.32 for professional rugby and thoroughbred jockeys. Office classifications sit at the very bottom – accounting 3 cents, legal services 5 cents, management consulting and corporate head offices 13 cents – while plumbing is $1.43, logging $2.32, roofing $2.39 and shearing $2.98. At $80,000 of salary that is the difference between $104 and $1,912 a year on the Work levy alone between a head office and a roofing business, which takes total employer cost from 3.71% to 5.97%. Getting the classification unit right is therefore worth more than any other single decision in a New Zealand cost model, and misallocation – usually inherited from whoever first registered the business, and often coding a mixed business to its highest-risk activity – is both common and expensive.

Two things changed in 2026/27 that most guides have not caught. The No-Claims Discount was discontinued on 1 April 2026, inside the current year, on the stated basis that it did not deliver the expected health and safety improvements. It applied to self-employed people and small businesses, and a small employer that budgeted for it this year will find it gone. What remains is Experience Rating, which needs a Work levy of $10,000 or more for three consecutive years to qualify – so smaller employers now have no claims-history mechanism at all. Experience Rating offers up to a 50% discount or up to a 100% loading, weighted by recency, and participants pay a 7.2% programme rate that is separate from any discount. Separately, the levy rates for 2025/26, 2026/27 and 2027/28 were all set together in December 2024, which means the 2027/28 figures are already fixed and can be modelled with confidence – unusually good forward visibility.

One number on the employee side causes more confusion than anything else. The ACC earners’ levy is set by ACC at $1.52 per $100 of liable earnings excluding GST, and collected by Inland Revenue at 1.75% including GST. Those are the same levy – $1.52 × 1.15 is 1.748 – and mixing the two documents produces a 15% error. It is employee-paid, embedded in the PAYE tables rather than shown as a separate payslip line, capped at $156,641, and worth at most $2,741.22 a year. It is also why the secondary tax codes look wrong to anyone comparing them with the headline income tax rates: the SB code deducts 12.25%, not 10.5%, because the rate quoted is income tax plus the earners’ levy.

PAYE income tax for 2026/27 runs at 10.5% to $15,600, 17.5% to $53,500, 30% to $78,100, 33% to $180,000 and 39% above that. It is a clean full year – the thresholds moved on 31 July 2024 and produced a composite eight-bracket schedule for that year only, which has caused lingering confusion, but they have applied in full since 1 April 2025 and there is no transitional complication in the live year. The Independent Earner Tax Credit delivers up to $520 a year through the ME tax code for employees earning $24,000 to $70,000, abating at 13 cents in the dollar above $66,000.

The deduction stack runs in a specific order and each element has its own rules. PAYE – income tax plus the 1.75% earners’ levy, applied by tax code – comes first. Then student loan at 12% of earnings above $24,128 a year on a main job, and here there is an asymmetry that generates complaints: on a secondary job 12% applies to every dollar with no threshold at all, because the threshold is deemed used by the main job. Then the KiwiSaver employee contribution. Then child support on notice from Inland Revenue, subject to protected net earnings so that deductions cannot take more than 40% of net pay. Payroll giving, where offered, reduces PAYE directly by 33.33% of the donation in the same pay period rather than being claimed at year end. Tax codes are declared on the IR330 for employees and the IR330C for contractors, and where no IR330 is provided the no-declaration rate deducts 45% – 46.75% with the levy.

Bonuses and lump sums do not use a flat rate. The method looks back four weeks at regular pay excluding any extra pay, annualises it by thirteen if paid more often than monthly or twelve if monthly, adds the secondary code’s low threshold where one applies, adds the lump sum, and reads the marginal rate off the resulting total. One carve-out is regularly missed: the earners’ levy applies to most lump sums but not to redundancy payments, retiring allowances or employee share scheme benefits. A performance bonus carries the levy; redundancy does not.

Fringe benefit tax is a separate return on its own cycle, and it is conflated with payroll constantly. Changes took effect on 1 April 2026, and they created a cost that very few employers have modelled. Where an employer elects to put a benefit through PAYE rather than through FBT – the option is attractive for gift cards and unclassified benefits – the amount enters the employee’s gross earnings. Gross earnings drive average weekly earnings, average weekly earnings drive the greater-of test, and the greater-of test drives holiday pay. So an FBT election made for administrative simplicity quietly raises the cost of every subsequent annual holiday. The same applies to electing to treat an employer superannuation contribution as salary rather than deducting ESCT: it is rarely cheaper, and it inflates Holidays Act gross earnings.

The Employment Relations Amendment Act 2026 came into force on 21 February 2026 and made four changes that matter to an employer. Employees on remuneration of $200,000 or more a year can no longer bring an unjustified dismissal personal grievance – note $200,000, not the $180,000 in the Bill as introduced. It applies to new employment agreements, with a twelve-month transition for existing ones, and it will be indexed annually from 1 July 2027. Two consequences are worth planning around: an existing high earner keeps dismissal protection until their agreement is replaced, and because a promotion above $200,000 usually means a new agreement, promotion can strip protection unless the parties expressly contract back in, which the Act permits in writing.

Second, where an employee’s own conduct contributed to the situation, the Employment Relations Authority and the Employment Court are now required to reduce or remove certain remedies rather than merely having a discretion to do so. Reinstatement and compensation for hurt and humiliation may be withheld entirely, although reimbursement of lost wages can still be ordered. That is a meaningful shift in employer exposure on a contested dismissal. Third, the thirty-day rule under which a new employee in a role covered by a collective agreement had to be employed on the collective’s terms for their first month was removed.

Fourth, and most useful commercially, there is now a gateway test for contractor status. A worker is a specified contractor – and cannot claim to be an employee – only where all five conditions are met: a written agreement stating they are an independent contractor; no restriction on working for others; either control over their own working times or a right to subcontract; a right to decline additional work without the arrangement ending; and a reasonable opportunity to take independent legal advice before signing. It is a safe harbour rather than a new test, so failing the gateway does not create employment – the common law control and economic-reality analysis applies instead. It is not retrospective.

Two other things are settled and worth stating plainly. The 90-day trial period has been available to all employers, regardless of size, since 23 December 2023, but it must be agreed in writing and in good faith before the employee starts work – signing on day one voids it, and that is litigated regularly. And New Zealand has no statutory redundancy compensation at all: no formula, no minimum weeks per year of service, no state fund. Redundancy pay exists only where the employment agreement provides for it, and many New Zealand agreements are lawfully silent. What the law does require is a fair process – a genuine business reason, genuine consultation, consideration of redeployment – and the exposure for getting that wrong is an unjustified dismissal grievance, not a statutory payment. A personal grievance must be raised with the employer within 90 days, extended to twelve months for sexual harassment, and then filed with the Authority within three years.

Annual holidays are four weeks after twelve months of continuous employment – weeks, not days or hours, which matters because a five-day worker gets twenty days and a three-day worker gets twelve. Annual holiday pay is then the greater of two separately computed figures: ordinary weekly pay, being what the employee receives for an ordinary working week including regular allowances and consistent overtime, and average weekly earnings, being gross earnings over the preceding twelve months divided by 52. Both must be calculated on every occasion, and the higher one paid. For casual and genuinely intermittent employees an 8% pay-as-you-go alternative exists, but it applies only where the employment genuinely has no fixed pattern, and drift into using it for regular part-timers creates double liability.

Public holidays, sick leave, bereavement leave, family violence leave and alternative holidays use a different pair of calculations again. Relevant daily pay is what the employee would have earned had they worked that day. Average daily pay is gross earnings over the past 52 weeks divided by the number of days worked. Average daily pay is not a free choice – relevant daily pay is the default, and average daily pay may be used only where relevant daily pay cannot practicably be determined or where the employee’s daily pay varies within the pay period. Systems configured to use average daily pay as standard because it automates more easily are non-compliant, and because it is usually lower for anyone with recent overtime, that configuration underpays.

So four different pay calculations coexist – ordinary weekly pay, average weekly earnings, relevant daily pay and average daily pay – each with its own inclusion rules and its own trigger conditions, applying to different leave types. That, rather than any single rule, is why New Zealand has had systemic holiday pay failure: between November 2015 and June 2020 private-sector employers paid over $237 million in holiday pay remediation to 227,300 employees. The other structural causes are that entitlement is expressed in weeks while payment happens in days or hours with no single statutory conversion; that gross earnings is broader than base pay and includes commission, regular overtime, allowances and benefits elected into PAYE; and that legacy systems typically encode one method and compound the error silently for years.

The rest of the leave framework is more straightforward. Ten days paid sick leave after six months, arriving as a block rather than accruing, carrying over to a maximum of twenty days. Bereavement leave of three days for an immediate family member and one day otherwise. Up to ten days paid family violence leave, which does not carry over and is not paid out on termination. Paid parental leave of 26 weeks, funded entirely by government and paid by Inland Revenue at up to $811.05 a week from 1 July 2026 – the employer pays nothing, and the rate changes mid-tax-year each July, so the 2026/27 year spans two maximums. There are twelve public holidays including a regional anniversary day, and Matariki is a moveable feast: always a Friday, set by a thirty-year schedule aligned to the Māori lunar calendar, and shifting by up to three weeks year to year. It falls on Friday 10 July 2026 and Friday 25 June 2027. A hard-coded date, or an assumption that it sits in late June, will be wrong. Mondayisation then means the same calendar date can be a public holiday for one employee and an ordinary working day for a colleague, depending on whether they would normally work that day.