Introduction

As we come closer to the 2024 tax year, new updates are set to roll out on April 1st, bringing significant changes in New Zealand’s employment legislation.  For businesses, understanding these changes and their implications on their payroll processes can be challenging. But no worries, we’re here to make these updates clear, offering clarity and ease in managing your payroll.

2024 Employment Legislation Changes

Minimum Wage Increase

Background: In New Zealand, the minimum wage is a legally mandated lowest hourly rate that employers must pay their workers, and it’s reviewed annually.The minimum wage in New Zealand has been on an upward trajectory, a trend consistent with the government’s efforts to ensure fair compensation for workers.

The Change: The minimum wage has risen from $22.70 to $23.15 per hour. For a full-time employee working a 40-hour week, this translates to an annual pre-tax income increase from $47,216 to $48,152, amounting to an extra $936 annually, or about $18 per week. This boost in earnings marks a positive step for the financial wellbeing of employees.

Along with this, the training wage, which is 80% of the minimum wage, has also been adjusted accordingly  to $18.52 from the current minimum rate of $18.16 per hour.

What You Need To Do To Stay Compliant: Employers must update their payroll systems to reflect this change for all employees on minimum wage. This includes ensuring all employees are paid at least the new rate from April 1, 2024. Additionally, ensure that employees on the training wage are also paid at least 80% of the new minimum wage rate.

Impact: This increase means higher earnings for workers on minimum wage, which is particularly beneficial in light of rising living costs. However, for employers, this means increased payroll expenses, requiring budget adjustments and potentially influencing hiring decisions.

ACC Earners’ Levy Increment

Background: The ACC earners’ levy funds New Zealand’s accident compensation scheme, which provides comprehensive, no-fault personal injury coverage. This levy is paid by employees and self-employed individuals based on their earnings. It’s deducted much like income tax, usually handled through the payroll process by employers or through income tax returns for the self-employed.

The Change: Employees will see a slight increase in their levy deductions. The ACC earners’ levy rate has been increased to 1.60% from the previous rate of 1.53%, an increase of 0.07%. For those earning up to the maximum liable earnings limit, the increase will be proportional to their income. The maximum liable earnings limit for this levy will be $142,283. For individuals earning more than NZ$142,283 annually, their levy contribution will be capped at a maximum amount of NZ$2,276.52.

What You Need To Do To Stay Compliant: Adjust payroll systems for the new ACC earners’ levy rate, ensuring accurate deductions from employee wages.

Impact: For employees, especially those with higher incomes, this results in slightly higher deductions from their pay. For employers, particularly those with higher-earning employees, this could mean an increase in the overall cost of payroll. However this is essential for maintaining a robust ACC fund, crucial for workplace safety and employee well-being.

Student Loan Repayment Threshold Increase

Background: The student loan repayment threshold determines when borrowers must start repaying their student loans, based on their annual income. The specific income level set as the threshold can vary from year to year, based on policy decisions and economic factors.

Current Change: The threshold has seen an increase from NZ$20,280 in 2022 to NZ$24,128 in 2024.

The annual repayment threshold increase means that all frequency rates have changed too. The repayment threshold is now broken down into the following pay period thresholds:

• $464 if you’re paid weekly.
• $928 if you’re paid fortnightly.
• $1,856 if you’re paid every 4 weeks.
• $2,010 if you’re paid monthly.

If you are wondering how long it will take to repay your student loan, you can check out IRD’s resource here.

What You Need To Do To Stay Compliant: Update payroll systems to reflect the new student loan repayment thresholds for different pay periods.

Impact: This adjustment provides relief for loan borrowers, especially recent graduates and part-time workers, as they can now earn more before loan repayments kick in. It also affects government revenue collection from student loan repayments in the short term.

What Do These Changes Mean?

These changes in New Zealand’s employment legislation in 2024 reflect a balanced approach towards economic growth, employee welfare, and education financing. While they pose certain challenges, particularly for businesses in terms of potentially increased payroll costs, they also represent a commitment to a more equitable and supportive work environment. For employees, these adjustments offer greater financial security and support. 

For employers, staying compliant and competitive requires a clear understanding of these legislative changes. It’s important for businesses to utilize efficient payroll systems and seek advice or support when needed to ensure these changes don’t put them at risk of non-compliance and penalties from the IRD.

Over the past five years, we have seen annual changes in New Zealand’s minimum wage, ACC earners’ levy, and student loan thresholds. One primary driver behind these adjustments is the country’s evolving economic landscape, heavily influenced by inflation and the cost of living.

According to the ‘United Nations 2024 World Economic Situation’ report, New Zealand’s inflation is expected to remain high in 2024, largely driven by an uptick in rental prices amidst housing supply shortages. The report projects New Zealand’s consumer price index to decrease to 3.4 percent in 2024, and further to 2.6 percent in 2025.

This trend of inflation, particularly post-Covid-19, has had a pronounced impact on the cost of living, necessitating adjustments in wages and levies to ensure economic stability and social equity. The increase in minimum wage, for example, aims to offset these rising living costs for workers.

Given these trends, it’s reasonable to anticipate continued adjustments in these payroll-related aspects. While these changes may pose challenges for businesses in terms of compliance and payroll management, they are crucial in maintaining the balance between economic growth and individual financial wellbeing.

It’s also encouraging to note the projected decrease in inflation rates, indicating a potential easing of economic pressures in the coming years. However, it’s important for businesses and individuals alike to stay informed and adaptable to these changes as New Zealand undergoes its economic recovery.

Other Changes in Employment Law in New Zealand

Beyond the primary legislative updates we’ve discussed, there are additional recent developments in New Zealand’s employment law that are worth noting. These shifts may have important implications for your payroll processes. This section will discuss these adjustments and outline what they mean for you as an employer.

90-Day Trial Periods

Background and Change: As part of the National Act, NZ First Coalition Government’s 100-day plan, effective December 23 2023, the scope of 90-day trial and probation periods has been expanded to include all New Zealand employers, regardless of their size. Previously, this was limited to businesses with 19 full-time employees or less.

What This Means for Employers:

• Employers with 20 or more full-time employees (FTE) can now implement a 90-day trial period for new hires.
• During this period, employers can terminate an employee’s contract without needing to provide a reason, provided the trial period is included in the employment agreement before the employee starts work, and appropriate notice is given.

Impact:

• Flexibility for Employers: This change offers more leeway in hiring decisions, allowing employers to better assess fit and performance.
• Payroll Adjustments: Payroll systems may need to adapt to accommodate potential employee turnover during trial periods.

Worker Protection Act (Migrant and other Employees) Act 2023

Background and Change: This Act, which came into effect on January 6, 2024, clarifies obligations related to record-keeping and cooperation with labor inspectors. If records are not immediately available during an inspection, employers now have up to 10 working days to provide the requested information. Failing to do so may result in infringement penalties of up to $1,000 per offense.

What This Means for Employers:

• Record-Keeping: It’s vital for employers to maintain accurate and readily accessible employee records.
• Awareness of Compliance: Understanding the specifics of what records need to be available is crucial to avoid penalties.

Impact:

• Administrative Overhaul: Businesses may need to review and update their documentation and record-keeping systems.
• Payroll System Requirements: Payroll systems should be capable of generating detailed reports to meet labor inspector requests efficiently.

Crystal Payroll – Keeping you ahead of the curve.

With legislative changes often occurring and signs of future changes to the Holidays Act, businesses can find themselves perpetually in the struggle to stay compliant. This is where Crystal Payroll shines. Our system is engineered to seamlessly integrate these changes into your payroll processes. From the automatic application of the ACC earners’ levy and student loan deductions to the effortless adjustment of minimum wage rates, we ensure that your payroll is compliant, accurate, and hassle-free.

For businesses yet to experience the clarity Crystal Payroll offers, these legislative changes present the perfect opportunity to reconsider your payroll solutions. As we move into the 2024 tax year, Get in touch with us to find out how Crystal Payroll can be your guide through the legislative changes. 

Steering Towards Sustainability

The NZ government says ‘yes’ to salary sacrifice that helps people save for retirement or covers childcare but ‘no’ to anything that just cuts tax without real benefits. They’re keeping a close eye on it, to make sure it’s all about helping Kiwis, not just cutting corners on tax. That’s why salary sacrifice in New Zealand just got more interesting with Workride’s innovative scheme. It’s an environmentally friendly transportation scheme for Kiwi employees and employers alike, looking to make daily travel more eco-friendly and affordable.

Salary Sacrifice in New Zealand

What is Salary Sacrifice?

In New Zealand, salary sacrifice involves an employee agreeing to receive a portion of their pay in a form other than cash, such as higher employer contributions to KiwiSaver, a private superannuation scheme, or daycare/childcare benefits. It is a pre-tax agreement that can result in the employee paying less tax on their income. However, there are limitations and rules around its use to prevent excessive salary sacrifice as a means to avoid tax.

Not to be Confused!

Salary Sacrifice in the context of this blog is unrelated to another payroll concept of KiwiSaver Salary Sacrifice, which is also called KiwiSaver Total Remuneration. This option can also be set up in Crystal Payroll but is separate to this article, and tends to benefit the employer more than the employee.

NZ’s Salary Sacrifice Strategy

The history of salary sacrifice in New Zealand has been closely tied to tax legislation and the desire to ensure fair taxation across different income levels. Concerns about the misuse of salary sacrifice for tax purposes have been addressed by the government. In 2006, Finance Minister Michael Cullen and Revenue Minister Peter Dunne highlighted the growing misuse of salary sacrifice arrangements, particularly concerning superannuation funds, which could result in significant tax disparities. 

The ministers addressed this with the following statements:

“In many cases, high-income employees ‘sacrifice’ their salary merely to reduce their income tax. They do this by arranging a dramatic reduction in their salary in return for a proportionate increase in employer superannuation contributions, which are taxed at a rate lower than their salary,” 

That is a misuse of the tax rules on employer superannuation contributions that results in great unfairness to other taxpayers on similar incomes. In the extreme, those who take advantage of salary sacrifice may well pay thousands of dollars less in tax than others on the same income. “

To address these issues, the government considered changes to the tax rules to counter extreme salary sacrifice practices, seeking to strike a balance between encouraging retirement savings and maintaining equitable taxation.

New Zealand’s salary sacrifice strategy is cautious but deliberate. By allowing salary sacrifices that align with social welfare and economic stability, the government aims to support its citizens without compromising the tax base. This selective approach ensures that salary sacrifice doesn’t become a vehicle for tax evasion but remains a tool for financial well-being. An effective salary sacrifice scheme in New Zealand is one that’s beneficial, compliant, and does not exploit loopholes – a reflection of the government’s commitment to equitable tax practices, prevention of tax base erosion and positive societal benefits.

Payroll for Workride’s New Scheme

Using WorkRide’s new Ride-to-Work benefit scheme means there might be some tweaking required to your payroll to handle salary deductions before taxes. It’s essential for employers to have a payroll system that’s up to the task—accurately handling these deductions and keeping everything compliant with tax laws.

Simple Salary Sacrifice with Crystal Payroll

Crystal Payroll offers a solution that integrates these new payroll needs smoothly. With features  to manage pre-tax benefit deductions, Crystal Payroll takes the complexity out of the equation, ensuring employers can offer WorkRide’s benefits hassle-free. It’s the smart way to keep your payroll compliant and your employees happy with their new wheels.

Here’s how we’ve tailored our system to facilitate the Ride-to-Work scheme:

New Pre-Tax Deduction Code: We’ve created a specific pre-tax deduction code in our system for the Workride scheme. This allows employers to set up the salary sacrifice efficiently, ensuring the deduction is made before tax and in compliance with New Zealand tax laws.

Automated Deductions: Once set up, our system automatically calculates the pre-tax deductions each pay cycle. This hassle-free automation ensures that the correct amounts are deducted, PAYE is accurately adjusted, and employees’ take-home pay reflects the tax benefits of the scheme.

Reporting and Compliance: Our system generates detailed reports that track the salary sacrifice deductions for employers and employees, giving employers transparency and tax compliance. Employers can readily access these reports for their records and tax filing needs.

Ease of Setup: Employers can quickly establish the Workride scheme for their employees through our intuitive interface. The setup process is designed to be straightforward, to ensure that the salary sacrifice is implemented correctly from the start.

Support and Guidance: Crystal Payroll provides exceptional support to ensure that employers understand the setup and management of the Workride scheme within our system. Our team is equipped to handle inquiries and provide detailed guidance. You can call us at (09) 480 0123 or contact us here.

Payroll Setup for Workride Benefits: A Step-by-Step Guide

The Basics of the RSE Scheme

The Recognised Seasonal Employer (RSE) scheme is an initiative by the New Zealand government, designed to address labor shortages in the horticultural, agricultural, and viticultural sectors. Under this scheme, when local labor falls short especially during peak seasons, employers in New Zealand have the green light to recruit seasonal workers from specific Pacific nations.

Here’s how it operates

Seasonal Employment

The scheme facilitates the employment of overseas workers for part of the year, aligning with the seasonal nature of the horticulture industry. This seasonal employment model helps to fill the labor gaps during critical periods of planting or harvesting.

Visa Requirements

Overseas workers under the RSE scheme are required to obtain a valid working visa to legally work in New Zealand. This visa lays down the terms of their employment, including the duration and employer details.

Mutual Benefits

The RSE scheme is a win-win for both parties involved. For New Zealand employers, it provides a reliable source of labor when it’s most needed, ensuring that crops are planted, tended, and harvested on time. For the workers, primarily from Pacific Island nations, it opens doors to employment opportunities, skill development, and a chance to earn income that significantly contributes to the well-being of their families and communities back home.

Key Laws and Regulations

Employment Agreements

It’s all about clarity. Employers need to have signed employment agreements with all RSE workers, spelling out the terms and conditions of employment.

Accommodation and Pastoral Care

A home away from home. Employers are to provide comfortable accommodation and ensure pastoral care for RSE workers.

Minimum Wage Compliance

As always, employers are required to adhere to New Zealand’s minimum wage guidelines. But there’s been a slight change here for RSE workers that you’ll need to know. Let’s get you updated on that in the next section!

Clarity for horticultural payroll

While the processes of planting and harvesting have their complexities, there’s another dimension equally intricate yet often overlooked: payroll calculations.

Now, if you’re involved in the horticulture sector, you’d know that many workers are paid based on a piece-rate system. It’s an approach that rewards efficiency and can be beneficial for both employers and employees. But with its benefits come challenges, especially understanding the intricacies of piece-rate payroll calculations and ensuring that everything aligns with the New Zealand payroll legislation. 

That’s why we’ve written this comprehensive guide, dedicated to untangling the web of calculations, top-ups, breaks, and offer practical advice to make your payroll process smooth and compliant.

Understanding piece-rate pay

What exactly is a piece-rate pay? Piece-rate pay, at its core, is the wage paid to a worker based on the quantity of work completed, rather than the hours worked. This system encourages workers to complete their tasks as efficiently as possible because their earnings are directly tied to their output, not to the amount of time they spend working. It is common in industries where tasks can be clearly defined and the output of each worker can be easily measured. This method is especially popular in the horticulture industry where tasks like fruit picking or pruning are quantifiable.

In the context of the horticulture industry, piece rates are often used to pay workers for picking fruits or vegetables, pruning trees, or performing other clearly quantifiable tasks. For instance, if a worker is paid based on the number of baskets of apples they pick, rather than the hours they spend, they’re on a piece-rate system. The advantage for employers is that piece rates can provide a strong incentive for employees to work quickly and efficiently, which can help to increase productivity. For employees, piece rates can offer the opportunity to earn more than they might under an hourly wage system, depending on how quickly and effectively they work.

Let’s consider an example from the horticulture industry in New Zealand: Imagine a kiwifruit orchard where workers are paid under a piece rate system. For every bin of kiwifruit that a worker picks, they receive $25. If a worker picks 10 bins of kiwifruit in a day, they would earn $250 (10 bins * $25/bin) before tax. The more bins a worker picks, the more they earn.

It’s straightforward in theory, but it can become intricate when it interacts with NZ’s employment laws.