Managing payroll


6 min read

What is payroll? Rules and regulation Payroll software Payroll system selection Things to look for Employee set-up Deductions Leave Public holidays Minimum wage compliance Final pay ACC payments Other handy considerations

Payroll is the essential process of recording and paying employees fairly in accordance with the law. This page guides you through the correct payroll rules and regulations, ensuring that employees are paid according to their employment agreement and legal requirements, including minimum wage and deductions like PAYE and KiwiSaver. It emphasises the importance of keeping accurate records and outlines considerations for selecting a suitable payroll system or service for your farming business. The page also highlights various types of leave and deductions, minimum wage compliance, and other factors to look out for when handling payroll. It's essential to ensure compliance to protect your farming business.

What is payroll?

Payroll is an essential process to understand, especially when you are managing employees. Employees must be paid fairly for the work they do and with legislative requirements becoming increasingly complex, having a comprehensive recording and payment system (payroll) is vital. It makes pay transparent, decreases misunderstandings and protects your farming business. In this page you will be able to discover the correct payroll rules and regulations, and what payroll system may be right for your business.

Rules and regulation of payroll

Following good practice and the essential rules and regulations is important when managing employees payroll. Although, sometimes that’s easier said than done! Recently even large organisations aren’t always getting this right. So, what do you need to do to be compliant?

  • Pay an employee as per their employment agreement and their employment type (e.g. casual, part-time, permanent etc.)
  • Pay an employee at least minimum employment law requirements
  • Ensure that leave and holidays are accounted for and paid correctly
  • Use the required calculation or the greater of the required calculations when paying staff ordinary hours, leave and holidays
  • Keep employee records and your pay records for at least seven years - more info from MBIE.
  • Tally hours worked and pay employees that have varying hours correctly. (This is why recording employee hours each day is so useful.)
  • Ensure every employee is receiving at least minimum wage for every hour worked and provide top up payments where appropriate
  • Deduct PAYE and send to IRD
  • Make any deductions necessary eg. WINZ, KiwiSaver etc.
  • Make a payslip available

The information and hours of work inputted into a payroll system plays a large part in whether you are correctly paying employees. If you are not recording accurate time and hours of work data via a timesheet or time recording system, you will not be paying employees correctly - for example holiday pay will be incorrect, and minimum wage top ups may not be happening.

There is a lot of terminology involved in paying employees. For the most up to date and correct information we suggest you look at the MBIE website.

Payroll software

Completing pay calculations on spreadsheets and using IRD/MBIE tools at home can be sufficient. However, with the complexities listed above and with the added headache of varying hours a payroll company/service takes the hassle out of calculating and paying staff and is more accurate.

Over the past few years there has been a move for farmers to use payroll software. Overwhelming, employers have found that the time savings in doing the calculations and the knowledge that all those records were readily available, outweighed the cost of the software.

If you are considering a payroll system we have put together some handy ideas on what to consider, read further below.

Please be aware that this is generic advice and every situation is different. We suggest that you seek your own legal advice before making a decision regarding pay and payroll to ensure that you meet legal requirements.

It’s also important to consider if your payroll provider is selling you a software product or an advisory service. If it is just the software, then you will need both the technical and legal knowledge to operate the software so that it calculates correct payments. If an employee is paid incorrectly the employer is usually required to pay them the correct amount at their cost.

Several payroll companies have partnered with the rural sector to make their products more customised to a farming business. Mention DairyNZ to them to see if they currently have any specials.

Selecting the right payroll system

Below is a guide that outlines some considerations to make when choosing a payroll system.

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

Employee set-up

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.

Public holidays

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.

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?

Final pay

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.

ACC payments

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.

Free employment info

Unsure of the information in this page or the best way forward? For free employment information try MBIE’s Employment call centre on 0800 20 90 20 during business hours.

Last updated: Sep 2023

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