A payroll provider may not always give the correct advice - if something doesn’t seem right or you’re not sure, it is best to seek legal advice or speak to MBIE. ‘Because the payroll provider said so’ is not a defence and unfortunately they are not always correct.
The information below is not intended to provide legal advice. If you are not familiar with some of the terms used, please visit Ministry of Business, Innovation and Employment
Things to look for when choosing a payroll system
Employees must be set up as you have arranged with the employee and in their Individual Employment Agreement.
If the system won’t let you set them up correctly, then ask why - it may be that the system isn’t flexible enough for the type of work they are doing, or perhaps your arrangements with them may not be the most appropriate. For example, a casual staff member should be able to be paid a public holiday if they work it.
Likewise, discuss with the payroll company what happens if an employees work situation changes. In particular if patterns of work are different than those in the employment agreement. Often casual employees can sometimes start working in patterns, this means their leave and holiday entitlements need to change accordingly.
Ask what deductions your payroll system can make. The main ones you will need to use may include:
- PAYE - encouraging employees to be on the right tax code ensures there are no big lump sum payments they need to make to IRD, find out more here.
- Rent - it may be appropriate that this is included in the salary, taxed via PAYE and then a deduction made from the employees pay to the landlord/employer.
- KiwiSaver - both employer and employee contributions. Ensure that KiwiSaver is calculated correctly and accommodation included in this calculation.
- ESCT - ensure Employee Superannuation Contribution Tax (ESCT) is calculated correctly. This is the tax on the employer contribution to KiwiSaver or a superannuation scheme. It is calculated at a rate set by IRD from the gross salary (including accommodation and KiwiSaver Employer Contribution), find out more here.
- Different types of leave need to be easily logged and a record kept.
- Annual holidays calculations - annual holidays (more commonly referred to as annual leave) should be paid at the higher amount of ordinary weekly earnings or average weekly earnings. These have specific calculations that MBIE has outlined and they get more complicated with varied or fluctuating hours. To see how a payroll should work it out click here.
- Annual holiday balances can be kept in hours, days or weeks, however they will need to be calculated back to what a week means for an employee. In a practical sense you will need to agree with employees what a week is for them.
- Leave without pay - check to see what happens if someone takes leave without pay for more than two weeks - is there an option to change their annual holidays entitlement date (i.e. no longer just their anniversary date) or not?
- Parental leave - check parental leave is catered for and that annual holiday entitlements are reflected correctly. For more information click here.
- Sick leave, bereavement leave, public holidays not worked and alternative leave should be calculated at relevant daily pay or if that is not possible or practicable average daily pay, particularly for waged/variable hour staff. For your own guidance see MBIE for more information.
A key determinant for public holidays and how they are paid is whether or not it is an otherwise working day for that employee.
- If it is an otherwise working day and a public holiday
- If it is worked an employee is entitled to be paid (the actual hours worked) for that day at one and half times plus an alternative day
- If it is not worked – they are entitled to get paid their relevant daily pay for that day
- If it is not an otherwise working day and a public holiday
- If it is worked an employee is entitled to their normal pay at one and half times
- If it is not worked they are not entitled to anything
Be aware different payroll systems set employees up differently for this. Don’t assume that anything is automatic but ask how it determines public holiday payments for all employees especially casual employees and those with variable hours.
- If it is an otherwise working day and a public holiday
Minimum wage compliance
- Can the system do a check on the hours your staff are working against minimum wage?
- Does it allow top up payments to be made easily and how does it alert you of these?
Ask how a termination pay is calculated. Look out for future public holiday not worked entitlements, does it project forward ALL annual holidays or just outstanding annual holidays.
These need to be accounted for; employees can receive their sick leave and ACC payments for an at-work accident and also receive correct entitlements for non-work related accidents.
Other handy considerations
- A ‘notes’ or ‘comments’ section in the time sheeting app can be an added bonus for staff management.
- Are payslips able to be customised? Note it is important that IRD numbers are NOT shown on payslips as this can help with ‘identity theft’ should a payslip make it into the wrong hands.
- How easily can you see the annual holiday balances? There are two different types of annual holiday - accrued or entitlement/outstanding.
- Does the payroll system provide ‘reminders’ as this is a helpful tool. Can this be updated by the employer or is it only for use by the payroll provider and therefore generic?
- Most payroll providers act as an intermediary service and take the PAYE when a pay is run and then pay it on to IRD on the 20th of each month. Many people think the benefit outweighs the opportunity cost of interest gained.