Compliance Confusion: When Clear-Cut Laws Aren’t So Clear

We would all like to hope that following the rule book should be simple enough to stay compliant, but unfortunately the rules aren’t always clear cut.The legislation, while providing guidelines, does not make it easy for businesses to determine what constitutes an “Otherwise Working Day.”

To understand the challenge, let’s break down the factors that legislation ask to be considered:

• The Employee’s Employment Agreement: This serves as the foundational document that sets out the terms of employment, including workdays and hours.

• The Employee’s Work Patterns: This considers the regularity and consistency of the employee’s work schedule.

• Other Relevant Factors: These can vary and include:
  • Whether the employee works only when work is available.
  • The employer’s rosters or similar systems in place.
  • The mutual expectations of the employer and the employee about the likelihood of the employee working on the concerned day.

• Special Considerations: It’s crucial to evaluate if the employee would have worked on a specific day if it wasn’t a public holiday or a day of leave.

Yet, the legislation does not rank these factors in terms of importance or relevance, which adds a layer of uncertainty.

The MBIE’s Otherwise Working Day Calculator

Recognising the complexity, the MBIE (Employment NZ) created a tool to help businesses and employees: The Otherwise Working Day Calculator. However, even this tool can still give an answer of “Possibly Otherwise a Working day”, which asks you to discuss with your employer to reach an agreement on compensation. It also does not guarantee to work for all situations, so employers and employees must be careful to ensure all factors that determine an otherwise working day are considered.

The Importance of Compliant Payroll Software: Lessons from Wendco

The world of employment legislation is intricate and ever-changing. As the Wendco case has shown, businesses that don’t prioritize payroll compliance can find themselves in hot water. However, the right tools, like compliant payroll software, can make all the difference.

Benefits of Compliant Payroll Software:

• Accuracy: Eliminate manual human errors that can lead to costly mistakes.

• Efficiency: Automated calculations save time and reduce the workload.

• Compliance: Stay updated with the latest legislative changes and requirements.

• Peace of Mind: Know that your employees are receiving their rightful entitlements.

• Cost Savings: Avoid potential fines and legal fees from non-compliance.

• Employee Satisfaction: Ensure timely and accurate payment, boosting morale and trust.

What to Look for in Payroll Software:

• Up-to-date with Legislation: The software should be regularly updated to reflect the latest legislative changes.

• Customizable: Cater to both standard and non-standard working patterns.

• User-friendly Interface: Easy navigation and clear instructions.

• Robust Reporting: Detailed reports for transparency and audit purposes.

• Support & Training: Access to expert guidance and training resources.

Public Holidays Always Paid Right – with Crystal Payroll’s New Statutory Pay Calculator

Different Tax Codes in New Zealand and Who They Apply To

New Zealand has a variety of tax codes, each designed for specific circumstances. These codes vary based on an individual’s earnings and the nature of their income—main or secondary.

Main Tax Codes

You’ll likely encounter the “M” and “ME” codes most often. These codes are designed for those whose earnings come primarily from one job.

• M: This means this occupation is the employee’s main source of income. Therefore their PAYE for their earnings should be calculated according to each relevant tax bracket, and not a flat tax rate. This is the most common tax code that you’ll see.

• ME: This also means this occupation is the employee’s main source of income, but they earn less than $48,000 per year. Therefore their PAYE for their earnings should be calculated according to each relevant tax bracket, and not at a flat tax rate. The special designation helps determine the employee’s eligibility for benefits such as the Independent Earner Tax Credit (IETC), which could allow them to receive up to a $10 tax credit per week.

Secondary Tax Codes:

Any code starting with an “S” indicates a secondary income. So, if an employee is on the M code for their main job and picks up a second source of income, that extra income will be taxed under a different code. The rate for this secondary tax code is determined based on their main income. 

• SB: This means this occupation is the employee’s secondary source of income, but they earn $14,000 or less across all sources of income, and therefore their PAYE should be taxed at a flat rate of 10.5% (excluding the ACC Earners’ Levy) for any payments.

• S: This means this occupation is the employee’s secondary source of income, but they earn between $14,001 and $48,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 17.5% (excluding the ACC Earners’ Levy) for any payments.

• SH: This means this occupation is the employee’s secondary source of income, but they earn between $48,001 and $70,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 30% (excluding the ACC Earners’ Levy) for any payments.

• ST: This means this occupation is the employee’s secondary source of income, but they earn between $70,001 and $180,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 33% (excluding the ACC Earners’ Levy if relevant) for any payments.

• SA: This means this occupation is the employee’s secondary source of income, but they earn over $180,000 across all sources of income, and therefore their PAYE should be taxed at a flat rate of 39% for any payments.

Here is a table of what secondary income will be taxed based on their annual main income.

Other Tax Codes

Not all jobs fit neatly into the categories of “main” or “secondary” income. These special tax codes ensure that your unique employment circumstances are accurately reflected in your tax withholdings.

• CAE: This relates to Casual Agricultural Employment, however, do not get this confused with the NSW tax code. If you employ an individual for agricultural work for a short fixed-term period, then their tax code should likely be CAE. This means their PAYE is taxed at a flat rate of 17.5% (excluding the ACC Earners’ Levy) for any payments, similar to the S tax code.

• NSW: This relates to Non-resident Season Workers. This is primarily used for individuals under the Recognized Seasonal Workers (RSE) scheme, but it could also apply to other industries if the employee is employed fixed-term as a non-resident. This means their PAYE should be calculated at a flat rate of 10.5% (excluding the ACC Earners’ Levy) for any payments, similar to the SB tax code.

• EDW: This relates to Election Day Workers. This would not relate to most forms of employment, however it means that their PAYE should be calculated at a flat rate of 17.5% (excluding the ACC Earners’ Levy) for any payments, similar to the S tax code.

Student Loan

• SL: This is not a tax code in itself, but it simply means the employee has a student loan. The SL can be added on to any “M” or “S” tax codes, depending if the employee has a student loan or not.

Tailored Tax Code

It’s worth noting that even with the correct tax code, the exact tax amount is rarely deducted unless you’re receiving a fixed, consistent income. Tax codes are designed to estimate your annual earnings, and if your work schedule or income varies, this estimate can be off the mark. That’s why most people end up with either a tax bill or a refund at the end of the tax year.

If you find yourself consistently receiving a tax bill, you might consider applying for a tailored tax code through the IRD. This allows for a more accurate estimate of your annual income, reducing the likelihood of an end-of-year tax bill.

How to Determine the Correct Tax Code for Employees

Determining the correct tax code is primarily the employee’s responsibility. While employers can guide them on where to find the necessary forms, it’s really up to the employee to figure out their tax code and inform their employer. 

If you’re an employee and need to know how to make sure your correct tax code is set up when you onboard, here’s how to go about it:

1. Start with the IRD: Your first stop should be the Inland Revenue Department (IRD). They offer a detailed guide and a tax code declaration form, known as the IR330. While it’s not the employer’s role to choose your tax code, they can point you to where you can find this form.
   • Online Option: The IRD website has an online tool that asks a series of questions about your income and circumstances. At the end of the questionnaire, it suggests the most appropriate tax code for you.
2. Employee Declaration: Once you know your tax code, it’s your job to inform your employer or the appropriate HR department. This is often done as part of a new employee file. If you don’t need to fill out an employee file, make sure to communicate your tax code to your employer through other means, whether that’s through an email or even just a text if that’s how you communicate with your employer.
   • Paper or Digital Forms: Whether your employer uses paper forms or digital platforms, you might need to submit the IR330 form to make it official. 
3. Review and Update: Life changes, like getting a student loan or a second job, can affect your tax code. Make it a habit to review your tax code when significant changes happen.
4. IRD Notifications: If you end up using the wrong tax code, the IRD will first notify you. If no change is made, they’ll then notify your employer. 

By following these steps, you can ensure that you’re on the most appropriate tax code, making tax time a breeze and keeping your payroll smooth.

Common Tax Code Mistakes

FAQs on Tax Codes in New Zealand

Simple Tax Code Management with Payroll Software: Why Choose Crystal Payroll

The 2023 RSE Scheme Updates

As we approach October 1st, 2023, the RSE scheme is set to undergo significant amendments aimed at enhancing the financial security and overall well-being of RSE workers. 

Here are the key updates:

Minimum Wage Increase

The minimum hourly wage for RSE workers will see a 10% increase, raising it from $22.70 to $24.97. Consequently, the minimum weekly wage (based on a 30-hour work week) will now be $749.10, up from the previous $681.00. If a worker’s earnings from piece rate work (income based on quantity produced rather than hours worked) fall below this minimum wage threshold, employers are required to top up their wages to meet the minimum requirement. Conversely, if workers earn more through piece rate work, they will be paid accordingly without any top-up. To learn more about why minimum wage top ups matter and how to automate them to guarantee compliance, check out our guide on piece rate.

More Flexible Sick Leave Entitlements

A notable change is coming to the sick leave entitlements for RSE workers. Previously, workers would receive 10 days of sick leave after six months of employment, with an additional 10 days after a year. But gone are the days of waiting six months for sick leave days. Now, workers will receive two sick leave days right from the get-go, with an additional two days accrued each month thereafter, until they reach the 10-day mark at four months of employment.

Here is a table from  that shows the new RSE worker sick leave accumulation:

For more detailed information, visit Immigration NZ for the official update documentation.

These updates are a stride towards creating a brighter, fairer work environment for RSE workers, keeping in step with New Zealand’s commitment to fair employment practices and nurturing the well-being of all workers on its land.

Implications for Payroll

The upcoming adjustments to the RSE scheme are not just for you to know; they will require you to make some proactive changes to your payroll processing if you want to stay on the right side of legislation. Or, have a payroll system that has taken the right steps to implement these changes for you. Let’s break down how these changes may impact your payroll operations and the steps to ensure seamless compliance.

• Updating Pay Rates: First things first, you’ll have to make sure your RSE workers are receiving that new minimum wage of $24.97. If the current pay rate for any of your RSE workers is lounging below the new minimum wage of $24.97, it’s time to give it a bump upwards. Ensuring every RSE worker’s pay rate is updated in your payroll system before the changes kick in on October 1st is your first step towards compliance.

• Sick Leave Adjustments: Next on the agenda is the new sick leave entitlement scheme which will require a bit more work to make the correct adjustments if your payroll system hasn’t implemented the updated scheme. You’ll need to ensure your payroll processes are up to speed with the new setup – two sick leave days from day one, with two more added each month until the 10-day mark at four months. If manual adjustments and record keeping of sick leave sounds like a headache, it might be a good time to check for a payroll software solution that can automate these changes. A little software magic can go a long way in keeping things streamlined!

• Staying in the Clear: Compliance isn’t just a fancy word; it’s your shield against potential audits and labor inspection visits. The last thing you want is a surprise knock on the door from the IRD because someone spotted a hiccup in your payroll. Keeping everything above board with the new RSE scheme changes is a solid move to keeping your employees happy. And remember, a happy employee is less likely to raise concerns with labor inspectors. So, ensuring your workers receive what they’re rightfully entitled to is not just about compliance; it’s about fostering a positive work environment.

• Avoiding Pitfalls: Staying informed about the RSE scheme updates is your best bet to avoid stumbling into pitfalls. It’s good practice to have a chat with your payroll provider or a knowledgeable advisor to ensure you’ve got all your bases covered.

So there you have it. A little prep work now can save you a heap of trouble later. And while you’re at it, why not explore how a trusted partner like Crystal Payroll can make navigating these changes a breeze? With the right support, you can face the upcoming RSE scheme updates with confidence and keep your focus where it belongs – on growing your business.

How can Crystal Payroll help?

Our commitment to streamlined processes is echoed by Craig Mill and Barbara Mortensen of Focus Labour Solutions Ltd. Since forming their company in Blenheim in 2008, they’ve been addressing South Island businesses’ labor demands, especially during peak times when their staff count inflates to 120 casual staff alongside 16 permanent staff. The diverse nature of their workforce, including RSE staff from Vanuatu, Kiribati, and Tuvalu, alongside Kiwi staff and backpackers, necessitated a robust payroll system capable of handling complex piece rates and paid break calculations.

Barbara Mortensen shares her experience: 

We have RSE staff from Vanuatu, Kiribati, and Tuvalu and Kiwi staff and we also employ backpackers, so there’s a lot of record-keeping and you need good systems to make sure you keep on top of things and that’s where Crystal Payroll is good – particularly on piece rates. It’s in those complex piece rates and paid break calculations that Crystal Payroll really excels. Performing the calculations clearly and simply, ensuring everyone is getting paid fairly and correctly.

RSE Compliance Made Simple: Take Action Today

Ready to make the transition? Crystal Payroll is your go-to partner for navigating the RSE scheme updates with ease. Explore our offerings and see how we can make a difference in your payroll processing. Get in touch with us today, and let’s ensure your payroll system is compliant, efficient, and ready for the upcoming changes.

NZ piece-rate legislation overview

New Zealand’s payroll legislation, particularly the laws around minimum wage top-up and paid break requirements, can get complicated for employers. Here’s the overview:

• Minimum Wage Top-Up: No matter how a worker is paid, they must never earn less than the minimum wage over a pay period. If a piece-rate worker’s total earnings don’t reach this minimum threshold, employers are required to top up their wages to ensure they meet this standard.
• Paid Breaks: Workers are entitled to paid rest breaks and unpaid meal breaks. The exact number and duration depend on the length of their work period.

Piece-rate and RSE workers

The horticulture and viticulture industries in New Zealand often experience seasonal peaks in labor demand, especially during harvesting and pruning times. Due to these peaks, domestic labor may sometimes be insufficient to meet the demands. The Recognised Seasonal Employer (RSE) scheme addresses this by allowing employers to recruit overseas workers, primarily from Pacific countries.

Given the seasonal nature of the work, many employers in these sectors use piece rates to incentivize workers to be more productive. The more they pick or produce, the more they earn. This kind of remuneration structure can be particularly attractive to RSE workers, as many aim to maximize their earnings in a limited time frame before returning to their home countries.

The piece rate system and the RSE scheme are interconnected mechanisms that help address labor needs in New Zealand’s horticulture and viticulture sectors. Both systems, when managed ethically and legally, can create a win-win situation: industries get the labor they need, and RSE workers have the opportunity to earn money to support their communities back home.

You can find out more about RSE workers and the different employment types in our blog post here.

Average Daily Pay and RSE workers

When we talk about RSE workers, their income predominantly comes from piece rates. This presents a unique challenge when addressing issues like sick leave, statutory holidays, or any other form of alternative leave. Here’s why: With their income being so variable, how do we ensure they’re compensated fairly during these off days?

The solution: Average Daily Pay.

Because of the inconsistency in the working patterns of RSE workers, during periods like sick leaves, holidays, or alternative leaves, they are compensated based on their average daily earnings. This guarantees a fair compensation model that is reflective of their usual earnings.

When it comes to annual leave, the calculations undergo a slight change. Given their fluctuating work hours, the leave RSE workers accrue is based on gross earnings, not default hours (because, let’s face it, determining default hours for them is next to impossible). So, if an RSE worker decides to take a day’s annual leave, how do we compute it? The answer lies in comparing their Ordinary Weekly Pay and Average Weekly Earnings where the worker will be entitled to the higher hours of the two.

Lastly, similar to fixed-term contract employees, RSE workers have a choice. They can discuss and decide if they wish to receive 8% of their gross earnings with each paycheck or accrue that leave to receive a lump sum at the end of their employment. Typically, many RSE workers opt for the former, preferring that extra bit of pay with every pay cycle.

Calculating minimum wage top-up: Making sure everyone gets their due

Let’s break it down:

1. Determine Total Earnings: Firstly, calculate the total earnings from piece-rate tasks over the pay period. For instance, if a worker picked 100 baskets of strawberries at $2 each, their total earnings would be $200.
2. Calculate Total Hours Worked: Record all hours the worker was engaged in tasks.
3. Check Against Minimum Wage: Multiply the total hours worked by NZ’s minimum wage rate ($22.70 per hour as of 1st April 2023). If this amount is higher than the piece-rate earnings, the difference is the top-up required.

Example: For 10 hours worked, at a minimum wage of $22.70/hr, the total minimum wage would be $227. If the worker only earned $200, you’d need to top up by $27.

Calculating paid breaks: A well-deserved break, well-calculated

Paid breaks are a little trickier. Here’s how you go about it:

1. Determine Break Entitlement: For every 4 hours worked, a worker is entitled to a 10-minute paid break.
2. Calculate Break Pay: Multiply the average hourly rate for the day (total earnings/hours worked) by the fraction of the hour the break took.

Example: If the worker earned an average of $30/hour and took a 10-minute break, they’d be entitled to $30 x (10/60) = $5 for that break.

Importance of compliance and penalties for non-compliance

NZ’s employment legislation isn’t just guidelines – they’re compulsory. Non-compliance can lead to hefty financial penalties. But beyond that, there’s potential damage to your business reputation, which can affect your relationship with workers and partners. It’s not just about money; it’s about trust.

As stated in a position statement from the official Employment New Zealand website,

Labour inspectors check that breaks are paid and provided for by employers. Penalties can be ordered for failures to comply with requirements for paid rest breaks and meal breaks”. The statement underscores the vigilant monitoring and the real consequences for businesses failing to ensure that their employees receive their rightful breaks.

Additionally, in light of the 2023 updates shared by Immigration New Zealand concerning RSE workers, changes are afoot. Starting October 1st, 2023, these workers will experience modifications to their sick leave entitlements and minimum wage. Notably, they’ll be granted two days of sick leave from the commencement of their employment, with an additional two days awarded each month. By the time they reach their four-month work anniversary, they’ll have accumulated a total of 10 sick leave days. Furthermore, the minimum wage has been adjusted to $24.97 (up from $22.70, factoring in a 10% increase).

Given these evolving standards and expectations, the message for employers is to stay informed, remain proactive, and ensure they’re not just meeting but exceeding the required standards.

How Crystal Payroll can help

At Crystal Payroll, we’ve designed our system to simplify and streamline these calculations so you can have the accuracy without the headache. Our payroll system has features tailor made for the horticulture industry and ensures that you’re always compliant with NZ payroll legislation, making minimum wage top-up and paid break calculations a breeze.

Here’s a look into what our payroll software can do for you to automate minimum wage top-up and paid break calculations.

Minimum wage auto top up

Crystal can ensure that workers will not be paid under the minimum wage with our auto-top up functions. From simply adding the days in which RSE employees are working at their piece rate items, the system will automatically top-up the employee if they meet under their contracted rate. 

Below is an example of the system not needing to top-up due to the piece rate items earning more than their contracted wage rate.

Here is one where the employee needs a top-up to meet their contracted rate.

Paid Break Calculations

Crystal Payroll automates the paid break calculations within the system, so as the employer you will only need to input in the number of paid breaks each employee had during the week.

Simplify your payroll today

So why do these calculations alone when we’re here to help? Not only do we help with the tricky formulas, but we also update you on legislative changes, ensuring you’re always ahead of the curve. 

Seeking to further ease your payroll processing? Consider our Crystal Timesheets add-on. This feature empowers your employees, allowing them to record piece rates and hours worked. Not only does this foster transparency, but it also cuts down the processing time considerably, as a significant chunk of the task is handled by the employees themselves.

If you’re interested in integrating Crystal Timesheets into your system, Click here to learn more and elevate your payroll processing experience.

Let’s work together to ensure your piece-rate payroll calculations are accurate, seamless, and hassle-free.

From full-time to seasonal – employment types and their payroll implications

When it comes to understanding the arrangements required to correctly process payroll for the many different employment types in New Zealand, clarity isn’t just important—it’s essential. The multifaceted categories of employment range from full-time and part-time to fixed-term, casual, contractors, and seasonal workers. Whether it’s the nuances of leave calculations, the specifics of holiday benefits, or the essentials of KiwiSaver, understanding the distinct attributes of each type is pivotal for businesses aiming to uphold payroll compliance. As we discuss this, our goal is to simplify, clarify, and highlight what businesses really need to know.

Permanent employees (full-time and part-time)

Full-time employees

Full-time employees, often recognized as the primary contributors to many businesses, usually work a standard 9 to 5, five days a week. Typically, 35 to 40 hours per week qualifies as full-time employment, although there’s no stringent legal definition by Employment Legislation .

Here’s what’s essential about their benefits:

• Types of Leave: Alongside the standard annual leave, full-time employees in New Zealand can access sick leave, statutory pay, alternative leave, parental leave, bereavement leave, and family violence leave.
• Annual Leave Accumulation: For a routine 40-hour week, an employee accumulates 3.08 hours of annual leave per week, culminating in 4 weeks per year ((4 / 52) x default hours).
• Annual Leave Pay Rate: An important aspect to consider is that if employees work beyond their designated hours, they are entitled to the highest pay rate when comparing their Default rate, Average weekly earnings rate, and Ordinary weekly pay rate. So, while working additional hours doesn’t increase the total annual leave duration, it does boost the pay rate when annual leave is taken.
• Statutory Pay: Full time employees also receive statutory pay if they normally work on the day that the public holiday falls on. Should they opt to work, they’re compensated at 1.5 times their normal pay rate. They may also be eligible to receive an Alternative Holiday (a day off to take instead) if the public holiday was an otherwise working day for them.
• KiwiSaver: Starting a full-time role automatically enrolls the employee into KiwiSaver. But there’s flexibility; between the end of the second week and before the close of the eighth week, they can opt out if desired. Upon opting out of Kiwisaver, the employee should expect to receive a refund by either the IRD or the employer. 

Part-time employees

Part-time employees typically work fewer hours than their full-time colleagues. While they share many of the same entitlements, the core difference is the decreased default hours which changes the rate that the employee would accrue leave. Employment Legislation outlines that “An example of a part-time permanent employee is someone who regularly works the same 3 days a week for eight hours each day, for a total of 24 hours a week.” 

Here are the key aspects of part-time employment:

• Types of Leave: Just like full-time employees, part-time workers are entitled to annual leave, sick leave, statutory pay, alternative leave, parental leave, bereavement leave, and family violence leave.
• Annual Leave Accumulation: Part-time employees accumulate annual leave based on their agreed-upon hours of work. For instance, if a part-timer works 24 hours per week, they would accumulate 1.84 hours of annual leave per week, culminating in approximately 96 hours per year ((4 / 52) x 24).
• Annual Leave Pay Rate: Should a part-time employee work beyond their set hours, their leave pay rate increases, similar to the mechanism for full-time workers. This doesn’t mean more holidays, but a higher pay rate when annual leave is taken.
• Public Holiday Entitlements: Public holidays bring specific considerations. If the holiday falls on a day that the part-time employee doesn’t usually work, they won’t receive pay for that day. For example, if an employee does not normally work on a monday, the part time employee would not be paid statutory pay for a public holiday that lands on a monday since they normally are not paid for that day. Apart from such scenarios, their public holiday entitlements remain in line with standard practices.

Fixed-term employees (Full and part-time)

Fixed-term employees work under a contract that concludes on a specific date. This arrangement is common in scenarios like parental leave coverage or temporary workload boosts.

Here’s what you need to know about fixed-term roles:

• Types of Leave: Fixed-term employees also have access to the same leave entitlements as permanent staff, whether they’re full-time or part-time.
• Pay-as-you-go Entitlement Option: Given the transient nature of their roles, there exists an understanding between employers and fixed-term employees. Instead of conventionally accruing annual leave, they might opt for a ‘pay-as-you-go’ approach. Here, instead of accruing leave, they receive an additional 8% of their gross pay with each payment, reflecting their annual leave entitlement. It is important to know that a proposed amendment to the Holidays Act 2003 that may be enforced as early as 2025 will remove this option.
• Annual Leave Accumulation & Pay Rate: Much like regular employees, fixed-term workers accrue leave based on their default hours. If they work beyond these hours, the leave pay rate increases accordingly. However, any annual leave taken in advance is deducted from their final pay upon contract conclusion.
• KiwiSaver: Fixed-term employees are eligible to join KiwiSaver, just like permanent employees. The same opt-in criteria apply.

Casual employees

While employment legislation doesn’t firmly pin down a definition, the general consensus identifies casual employees as those without guaranteed hours, a consistent work pattern, or ongoing commitments to remain in employment. 

Here’s a more detailed look at their benefits:

• Pay-as-you-go Entitlement: Given their unpredictable hours, offering annual leave to casual employees isn’t realistic. Typically, both employer and employee settle on the “paid as they go” entitlement setting. In this method, the casual employee receives an additional 8% of their pay during each payment cycle instead of standard annual leave.
• Other Leave Entitlements: If any employee is employed for six months continuously then they receive 10 days of Sick Leave and are eligible for Bereavement Leave. However, for casual employees it is difficult to define whether their employment is continuous. If you are certain that they are not continuous, then the following criteria must be met. After a 6-month span, if a casual employee maintains an average of at least 10 hours weekly, and clocks in a minimum of one hour every week (or 40 hours monthly), they’re eligible for sick pay and bereavement leave.
• Statutory Pay: Determining statutory pay for casuals hinges on their recent work pattern. If, say, an employee worked the preceding four Mondays, and a public holiday is on the horizon the next Monday, we’d factor in the average hours from those past four Mondays to calculate the statutory pay for the upcoming holiday. 
• KiwiSaver: Casual employees have autonomy when it comes to KiwiSaver. Unlike automatic enrollment for other employment types, casual employees have to initiate their KiwiSaver membership by reaching out to a scheme provider. This flexibility lets them hop in or out of KiwiSaver as per their preferences.

Contractors

Contractors are quite distinct from the previous types and have a unique set of payroll rules. Contractors typically remain off the regular payroll since they’re self-employed, with the ability to handle their own taxation. 

Here’s what sets them apart:

• Taxation: Instead of the standard PAYE, contractors pay withholding tax based on numerous factors including the type of industry they work in. Thankfully, this is not a worry for an employer though, as like with tax codes and employees it is the contractor’s responsibility to provide their employer / customer (depending on how you look at it) with the correct tax rate. This form of tax envelops entire incomes as opposed to just wages or salaries. Importantly, it’s tailored to the specific nature of the contractor’s work.
• GST Registration: Being GST-registered, contractors can reclaim the GST on their purchased goods and services. It’s an advantage that underscores their independent working status.
• Absence of Traditional Entitlements: Contractors don’t receive the 8% “pay-as-you-go” or any annual leave entitlements, primarily because there’s no fixed reference point in terms of hours. Consequently, there’s no need to log work hours; they just focus on recording the overarching gross amount.

RSE (Recognised Seasonal Employer) employees

RSE workers serve as a special subset of New Zealand’s workforce. They primarily only work at particular times of the year in seasonal roles and normally only for a certain amount of time (much like a fixed term employee). They are often utilized within the horticulture and viticulture industries and earn by piece rates. 

Here’s what you need to know about RSE workers and their payroll rules:

• Piece Rates vs. Hourly Rates: Instead of earning per hour, RSE employers may choose for their workers to get paid for the volume of work completed. Each task, be it picking strawberries or any other, carries a distinct pay rate. However, the hourly rate is still a viable option for RSE employers to pay their RSE workers. 
• Minimum Wage: The pay structure may differ, but minimum wage regulations still apply. However, the RSE minimum wage, currently at $22.70, has a separate track compared to other roles. From October 1, 2023, RSE Employees will have a minimum wage of $24.97.
• Leave or “Paid-as-you-go”: Like their fixed-term counterparts, RSE workers need to discuss with their employer whether they’ll accrue leave during their seasonal work or opt for the “paid-as-you-go” arrangement. If they choose to accumulate leave, they’ll receive their 8% holiday pay at the conclusion of their contract.
• Leave Accrual: If an RSE worker elects to accrue leave, it’s calculated based on their gross earnings.

• Seasonal Worker Superannuation Administration Service (SWSAS): Retirement savings are different for RSE workers. RSE workers aren’t typically tied to the mainstream KiwiSaver scheme. Instead, they’re integrated into the specialized Seasonal Worker Superannuation (SWSAS). 
  • Essentially the RSE’s answer to KiwiSaver, the SWSAS is a government-led pilot program that mirrors the benefits of what IRD provides for KiwiSaver, but it’s been created for the unique needs of RSE workers and caters especially to the 18 Pacific Island National Provident Funds.
  • Most Pacific Island seasonal workers (RSE workers) are obligated to contribute to their retirement savings account with their home country National Provident Fund.
  • If you’re an employer of seasonal workers, connect with Appello Services for SWSAS registration and access details. Post-registration, employers gain access to the SWSAS Employer Portal, which provides detailed insights into each seasonal worker’s account.

What’s the difference between annual leave and holiday pay and why does it matter for employment types?

In New Zealand, under the Holidays Act 2003, the treatment of annual leave and holiday pay depends largely on the employee’s work pattern. Full-time and part-time employees, who work regular hours, accrue annual leave. After 12 months of continuous employment, they are entitled to four weeks of paid annual leave. This leave continues to accumulate from year to year if it’s not used, offering employees the flexibility to take time off when they need to while still receiving their regular pay.

On the other hand, casual employees or those with irregular work schedules receive holiday pay, which is typically calculated as 8% of their gross earnings and paid out with each pay cycle. This system is used when the employee’s work is so irregular that it wouldn’t be practical to provide four weeks of annual leave.

In the case of fixed-term employees, it’s sometimes possible to pay holiday pay ‘as you go’, but this only applies if the contract is less than 12 months, and the arrangement is specified in the employment agreement.

It’s critical to handle these entitlements correctly in payroll processing. Misclassifying a full-time permanent employee and paying them on an 8% ‘pay as you go’ basis could have significant consequences, including potential penalties from MBIE (Ministry of Business Innovation and Employment) / ERA (Employment Relations Authority) and claims for unpaid annual leave.

Employees and employers alike should remember that these rules are in place to ensure a fair and equitable system, where workers can rest and rejuvenate, regardless of their employment status or schedule. Therefore, it’s important to understand and apply them correctly.

Switching between employment types: how does this affect your payroll

When an employer in New Zealand wants to change an employee’s contract, such as transitioning a casual worker to a full-time role or vice versa, a process of good faith negotiation as outlined in the Employment Relations Act 2000 must be followed.

For example, a casual worker who becomes a full-time employee will see significant changes to their contract. Their entitlements would change from receiving holiday pay on an ‘as you go’ basis (at a rate of 8% of gross earnings) to accruing four weeks of annual leave after every 12 months of continuous employment. Conversely, a full-time employee moving to a casual role will have their annual leave entitlement changed to the 8% holiday pay included in their casual pay rate. Take note that the full-time employee will have an existing annual leave balance that must either be paid out before changing their contract or must be made available for use while they are under the casual contract.

Note:  if you transition into a regular work pattern after starting as a casual employee, your employer should update your employment contract to a permanent employment agreement.

In both scenarios, it’s crucial for employers to accurately adjust these changes in their payroll systems to reflect the different leave entitlements, ensure correct salary calculations, and appropriate statutory deductions. The transition between contract types may also influence KiwiSaver contributions, student loan repayments, and PAYE tax deductions. If an employee’s salary changes, these values will need to be updated in the payroll system to ensure the employee’s pay slip correctly displays their earnings and deductions.

By doing this, employers can avoid potential harsh penalties from IRD/MBIE/ERA, maintain trust and transparency with employees, and ensure a smooth transition during contract changes. It’s always recommended to consult with a HR or payroll professional to ensure compliance with all New Zealand employment legislation and tax regulations during these changes.

How to simplify employment payroll management with a payroll system

Managing multiple employment types may seem complex, but with Crystal Payroll, clarity and simplicity are at the core of what we offer.

Our platform provides easy solutions to manage various employees, whether full-time, part-time, or seasonal. With functionalities that make 8% pay-as-you-go or leave accruals clear and simple, we aim to take the guesswork out of payroll. 

Empower your employees with our user-friendly timesheet add-on, allowing them to submit timesheets and leave requests directly to you. And with our mobile functionality and cloud-based software, we ensure that you can process payroll from anywhere, anytime. Cut down on administrative hassles and make compliance stress-free.

Plus, with our secure platform, your team can have clear visibility over payslips and leave balances. One less thing for you to manage, and peace of mind for your employees.

Ready to embrace a clearer, simpler approach to payroll? Contact us at sales@crystalpayroll.co.nz to organize a free demo. Experience the ease of Crystal Payroll and turn complexity into compliance with confidence.

Understanding and correctly calculating your tax obligations is crucial, whether you’re an employer making payments to the IRD, or an employee looking to gain a better understanding of your pay. Crystal Payroll’s user-friendly PAYE calculator provides a reliable, simple solution to help you work out your tax deductions accurately and swiftly.

Demystifying PAYE: What is it?

PAYE, or Pay-As-You-Earn, refers to the process where a specific percentage of wage or salary earnings are withheld and paid to the government as tax. Each payday, tax deductions are made from gross earnings and transferred to the IRD. Besides income tax, PAYE may also include other income-based deductions like KiwiSaver contributions, student loan repayments, and child support payments.

Why Use a PAYE Calculator?