Hiring Your First Employee in New Zealand – What You Need to Know

Taking on your first employee is an exciting milestone for any New Zealand business. However, it also brings significant legal responsibilities and obligations that you must understand and meet. This comprehensive guide walks you through everything you need to know to get it right from day one.

Step 1: Register as an Employer with Inland Revenue

Before you can pay your first employee, you must register as an employer with Inland Revenue (IRD). This is a legal requirement under the Tax Administration Act 1994.

What You Need to Do:

Register for an Employer Number: Contact IRD or register online through myIR. You’ll receive a unique employer number that identifies your business for PAYE purposes. You can do so HERE!

Set Up PAYE: Pay As You Earn (PAYE) is the system for deducting tax from employee wages. Under the Income Tax Act 2007, you’re required to deduct tax from employee earnings and pay it to IRD.

Understand Your Filing Obligations: Most employers must file employment information through payday filing, which means reporting employee pay information to IRD every payday. This is mandated under the Tax Administration Act 1994.

Key Legislation:

• Tax Administration Act 1994
• Income Tax Act 2007

Timeline: Register at least a few weeks before your first employee starts to ensure your systems are ready.

Step 2: Employee Selection and Recruitment

Choosing the right person is crucial, but you must follow legal requirements throughout the recruitment process.

Legal Obligations During Recruitment:

Non-Discrimination: The Human Rights Act 1993 prohibits discrimination based on sex, marital status, religious belief, ethical belief, colour, race, ethnic or national origins, disability, age, political opinion, employment status, family status, or sexual orientation.

Privacy Considerations: Under the Privacy Act 2020, you can only collect information that’s relevant to the position. You must tell candidates why you’re collecting their information, who will see it, and what you’ll do with it.

Immigration Requirements: If hiring someone who isn’t a New Zealand citizen or resident, you have legal obligations to verify they have the right to work in New Zealand under the Immigration Act 2009.

Criminal Record Checks: Only request these if genuinely relevant to the role. The Criminal Records (Clean Slate) Act 2004 may prevent disclosure of some convictions.

Understanding Visa Requirements for Non-Resident Employees

Who Can Work in New Zealand Without a Visa:

• New Zealand citizens
• Australian citizens and permanent residents (can work under the special category visa)
• New Zealand permanent residents (holders of a resident visa)

Everyone Else Needs a Work Visa

If your potential employee doesn’t fall into one of the above categories, they must hold a valid work visa that permits them to work for you.

Types of Work Visas:

There are numerous work visa categories, including:

• Accredited Employer Work Visa (AEWV): The primary work visa category – requires you to be an accredited employer
• Working Holiday Visa: Allows people aged 18-30 (or 35 for some countries) to work in New Zealand temporarily
• Post-Study Work Visa: For international students who have completed NZ qualifications
• Partner Work Visa: Held by partners of some visa holders
• Specific Purpose Work Visa: For specific short-term work purposes
• Essential Skills Work Visa: Being phased out, replaced by AEWV

Your Legal Obligations:

Under the Immigration Act 2009, you must:

1. Check Work Rights Before Employment:
   • Verify the person has the right to work in New Zealand
   • Check their visa conditions (some visas have restrictions on hours, type of work, or specific employers)
   • Use Immigration New Zealand’s VisaView system to verify visa status
   • Keep copies of verification for your records
2. Ensure Visa Remains Valid:
   • Monitor visa expiry dates
   • If an employee’s visa expires, they cannot continue working for you
   • You must see evidence of a new visa before they can return to work
   • Some visa applications include “interim visas” – check what rights these provide
3. Understand Visa Conditions:
   • Some visas restrict the type of work or number of hours
   • Working Holiday visas often prohibit permanent employment with one employer
   • Student visas typically limit work to 20 hours per week during study
   • AEWV holders must work in the specific role and for the specific employer named on their visa
   • Breaching visa conditions can affect the employee’s immigration status
4. Accredited Employer Work Visa (AEWV) Specific Requirements:
   • You must be an accredited employer to employ AEWV holders
   • Accreditation has three levels: Standard, High Volume, and Triangular Employment
   • You must support a “job check” for each role before offering employment
   • You must comply with employment standards
   • You have ongoing obligations around record-keeping and reporting

How to Check Work Rights:

VisaView System:

• Immigration New Zealand’s online system for verifying visa status
• Requires the person’s consent and passport details
• Provides real-time information about visa status and conditions
• You should check before employment and monitor expiry dates

Physical Visa Evidence:

• Request to see the person’s passport with visa or eVisa
• Take copies for your records
• Be aware that some visas are electronic only

Penalties for Non-Compliance:

Employing someone without valid work rights is a serious offence under the Immigration Act 2009:

• Criminal Conviction: Up to 7 years imprisonment and/or fines up to $100,000 for an individual
• Company Penalties: Fines up to $100,000 for corporate employers
• Exploitation Penalties: Even higher penalties if convicted of exploiting migrant workers
• Accreditation Loss: If you’re an accredited employer, you can lose your accreditation
• Reputational Damage: Immigration enforcement actions are often publicized

Red Flags to Watch For:

• Reluctance to provide visa documentation
• Expired visas with promises that renewal is “in progress”
• Visa conditions that don’t match the work you’re offering
• Requests to be paid cash only
• Documents that appear altered or falsified

Migrant Exploitation:

New Zealand has specific protections against migrant exploitation. As an employer, you must:

• Pay migrant workers the same as you would pay New Zealand citizens
• Comply with all employment standards
• Not take advantage of a migrant worker’s visa status or lack of knowledge
• Not threaten visa cancellation or deportation to control workers
• Not require employees to pay excessive fees or bonds

Exploitation of migrant workers can result in penalties up to $100,000 for individuals and $250,000 for companies under the Immigration Act 2009.

Best Practices:

1. Always Verify First: Never let someone start work until you’ve confirmed their visa status
2. Keep Records: Maintain copies of visa verification and documentation
3. Monitor Expiry Dates: Set reminders for visa expiry dates well in advance
4. Understand Conditions: Read and understand any conditions on the visa
5. Use Official Channels: Only use Immigration New Zealand’s official systems
6. Seek Advice: If unsure, contact Immigration New Zealand or an immigration adviser
7. Treat Fairly: Migrant workers have the same employment rights as citizens and residents

Getting it Right:

Hiring non-resident workers can be valuable for your business, but it requires diligence and compliance with immigration law. The consequences of getting it wrong are severe, including criminal convictions.

If you’re considering hiring non-residents regularly, you should:

• Understand the full accreditation process if employing AEWV holders
• Develop systems for tracking visa expiry dates
• Train relevant staff on verification procedures
• Consider professional immigration advice for complex situations

Remember: “I didn’t know” is not a defence. As an employer, you’re expected to verify work rights and comply with the Immigration Act.

Key Legislation:

• Human Rights Act 1993
• Privacy Act 2020
• Immigration Act 2009
• Criminal Records (Clean Slate) Act 2004

Best Practices:

• Write clear job descriptions
• Use consistent selection criteria for all candidates
• Document your selection process
• Conduct reference checks with consent
• Make conditional offers subject to reference checks and any necessary police vetting

Step 3: Understanding Employment Types and Classifications

Before drafting an employment agreement, you need to understand what type of working relationship you’re creating. This is one of the most misunderstood areas of employment law, and getting it wrong can have serious consequences.

The Four Types of Working Relationships

New Zealand law recognizes four distinct types of working relationships:

1. Employee
2. Dependent Contractor
3. Independent Contractor
4. Volunteer

The distinction between these categories determines what obligations you have and what rights the worker has. You cannot simply choose which category suits you best – the actual nature of the relationship determines the classification, regardless of what you call it in a contract.

Employee

What It Is: An employee works for you under an employment agreement, following your direction and control, and is integrated into your business.

Key Characteristics:

• Works under your direction and control
• You determine when, where, and how work is performed
• Integrated into your business structure
• Uses your tools, equipment, and premises
• Paid regular wages or salary
• Cannot send someone else to do the work
• Works exclusively or primarily for you
• You bear the commercial risk

Your Obligations as an Employer:

• All obligations covered in this guide apply
• Minimum wage requirements
• Holiday and leave entitlements under the Holidays Act 2003
• KiwiSaver obligations
• PAYE deductions and ACC levies
• Health and safety responsibilities
• Protection under the Employment Relations Act 2000
• Personal grievance rights

Key Legislation:

• Employment Relations Act 2000
• All employment legislation listed in this guide

Dependent Contractor

What It Is: A dependent contractor is technically self-employed but is economically dependent on your business. This classification was introduced through case law and is now recognized in the Employment Relations Act 2000.

Key Characteristics:

• Operates their own business but is economically dependent on you
• May invoice you rather than receiving wages
• Has some independence in how work is performed
• But relies on you for most or all of their income
• Limited ability to work for others
• Often in an unequal bargaining position

Your Obligations:

• Some protections under the Employment Relations Act 2000 apply
• Access to the Employment Relations Authority for disputes
• Good faith obligations apply
• Protected from unjustified dismissal
• However, NOT entitled to minimum wage, holiday pay, or KiwiSaver
• No PAYE obligations (they’re responsible for their own tax)

The “Dependent Contractor” Test:

Courts look at factors including:

• Economic dependence on your business
• Vulnerability and inequality of bargaining power
• Control you exercise over the work
• Whether they can truly operate independently

Example: A courier who owns their van and technically runs their own business, but works exclusively for your company, follows your delivery schedules, and wears your uniform might be a dependent contractor.

Independent Contractor

What It Is: A genuinely self-employed person running their own business who provides services to you on a commercial basis.

Key Characteristics:

• Runs their own business with multiple clients
• Has control over how and when work is performed
• Uses their own tools and equipment
• Can send someone else to do the work
• Bears commercial risk (can make profit or loss)
• Invoices for services rather than receiving wages
• Has their own business structure (company, sole trader, partnership)
• Economically independent

Your Obligations:

• Commercial contract only (not an employment agreement)
• No employment law obligations
• No PAYE, KiwiSaver, holiday pay, or leave entitlements
• They’re responsible for their own tax and ACC
• Good faith commercial relationship
• Payment of agreed contract price

Key Legislation:

• Contract and Commercial Law Act 2017 (contract law applies)
• May have obligations under vulnerable workers provisions (see below)

Important: Even if you sign a contract saying someone is an independent contractor, if the actual nature of the relationship indicates they’re an employee, the law will treat them as an employee. You cannot contract out of employment law.

The “Real Nature of the Relationship” Test

When disputes arise about classification, the Employment Relations Authority and courts apply the “real nature of the relationship” test established in case law and codified in the Employment Relations Act 2000.

Key Factors Considered:

Control and Direction:

• Who decides when, where, and how work is performed?
• Can they refuse work?
• Do they set their own hours?

Integration:

• Are they part of your business structure?
• Do they report to your managers?
• Do they wear your uniform or branding?

Economic Reality:

• Who provides tools and equipment?
• Who bears the commercial risk?
• Can they make profit or loss?
• Do they work for others?
• How are they paid (wages vs invoices)?

Intention:

• What did both parties intend? (This is the least important factor)
• What does the written agreement say? (Can be overridden by actual practice)

No Single Factor is Decisive: Courts look at the overall picture. Having some independence doesn’t automatically make someone a contractor if other factors point to employment.

Why Classification Matters

Getting it Wrong is Expensive:

If you treat an employee as a contractor to avoid obligations, you face:

1. Back Payment of Entitlements:

• All holiday pay they should have received (potentially years worth)
• KiwiSaver contributions you should have made
• Any underpayment of minimum wage
• Interest on these amounts

2. Penalties:

• Significant penalties from the Labour Inspectorate
• Employment Relations Authority may order penalties up to $50,000
• Penalties under the Tax Administration Act 1994 for unpaid PAYE

3. Legal Costs:

• Cost of Employment Relations Authority or court proceedings
• Potentially the worker’s legal costs as well

4. Tax Liability:

• IRD can reassess and require PAYE payments
• You’ll be liable for unpaid PAYE even though you paid the worker gross
• Penalties and interest on unpaid tax

5. ACC Issues:

• Potential ACC levy reassessments
• Issues with injury cover if classification was wrong

6. Reputational Damage:

• Labour Inspectorate enforcement actions are often publicized
• Damage to your business reputation

Real-World Example: A Wellington café was ordered to pay over $30,000 in remedies after incorrectly classifying a worker as a contractor. The worker was integrated into the business, worked set hours, wore the café’s uniform, and was treated like other employees. The “contractor” agreement was ignored by the Employment Relations Authority.

Vulnerable Workers Provisions

The Employment Relations Act 2000 includes specific provisions to protect “vulnerable workers” – contractors who work in industries where they’re at risk of exploitation.

What Are Vulnerable Workers Provisions?

These provisions (sections 6A-6D of the Employment Relations Act 2000) hold principal employers responsible for ensuring that contractors engaged through intermediaries receive minimum employment standards.

When Do They Apply?

The provisions apply when:

• You engage a contractor or labour-hire company to supply workers
• Those workers perform work for your business
• The workers are performing similar work to your employees
• The work is substantially connected to your business operations

Common Scenarios:

• Security guards contracted through a security company
• Cleaners contracted through a cleaning company
• Labour-hire workers in manufacturing or warehousing
• Contracted call center workers
• Scaffolders on construction sites

Your Obligations Under Vulnerable Workers Provisions:

Even though the workers are employed by or contract to an intermediary (labour-hire company, contractor), you must ensure:

1. Minimum Wage Compliance: Workers must be paid at least the minimum wage
2. Holiday Pay Requirements: Workers must receive correct holiday pay under the Holidays Act 2003
3. Rest Break Provisions: Workers must receive proper rest and meal breaks
4. Record-Keeping: You’re responsible for ensuring proper records are kept

You Can Be Held Liable: If the intermediary doesn’t comply with these minimum standards, you can be held jointly and severally liable for any breaches.

How to Comply:

1. Due Diligence: Before engaging contractors, verify they comply with employment standards
2. Written Contracts: Include clauses requiring minimum employment standards compliance
3. Regular Audits: Periodically check that workers are being paid correctly
4. Records Access: Ensure you can access employment records to verify compliance
5. Prompt Payment: Pay contractors promptly so they can pay their workers

Penalties:

Breaches of vulnerable workers provisions can result in:

• Penalties up to $40,000 per breach
• Being ordered to pay workers directly for any shortfalls
• Labour Inspectorate enforcement action

Key Legislation:

• Employment Relations Act 2000, sections 6A-6D (vulnerable workers)
• Employment Relations (Triangular Employment) Amendment Act 2019

Volunteers

What It Is: Someone who works for you without expectation of payment or other reward.

Key Points:

• Must be genuinely voluntary
• Cannot be a requirement for receiving benefits or services
• Cannot displace paid workers
• Still covered by health and safety obligations
• No employment rights or obligations

When “Volunteers” Are Actually Employees:

• If you pay them anything beyond reimbursement of genuine expenses
• If there’s an expectation of payment or other reward
• If they’re required to attend as a condition of something else
• If the arrangement looks like disguised employment

Getting Classification Right

Red Flags for Misclassification:

You’ve probably misclassified an employee as a contractor if:

• They work set hours that you determine
• They can’t refuse work without consequences
• They work exclusively or primarily for you
• They use your equipment and premises
• They wear your uniform or branding
• They’re supervised by your managers
• They’re integrated into your team
• They don’t bear any commercial risk
• You called them a contractor mainly to avoid employment obligations

When In Doubt:

If you’re unsure about classification:

1. Get legal advice from an employment specialist
2. Apply the real nature of the relationship test honestly
3. Consider what would happen if challenged in the Employment Relations Authority
4. Remember: getting it right now is much cheaper than fixing it later

Best Practice:

• Default to employment unless clearly independent contracting
• Document your reasoning for classification decisions
• Review working arrangements regularly
• Don’t rely on “contractor agreements” alone
• Be especially careful with long-term working relationships
• Ensure any contractors you engage through intermediaries are protected under vulnerable workers provisions

Summary: Which Classification?

Choose Employee If:

• You need control over when and how work is done
• Work is ongoing and regular
• The person will be part of your team
• They’ll use your tools and work from your premises
• This is their primary or only source of income from working

Independent Contractor Might Be Appropriate If:

• They run a genuine business with multiple clients
• They have control over how they deliver the service
• They provide their own tools and equipment
• They invoice you for services
• They bear commercial risk
• The engagement is project-based or sporadic

Remember: The actual nature of the relationship – not your wishes or the contract label – determines the classification.

Step 4: Employment Agreements (Contracts)

Once you’ve selected your employee, you must provide a written employment agreement before they start work. This isn’t optional – it’s required by law. You can create one HERE!

Employment Relations Act 2000 Requirements:

Individual Employment Agreement (IEA): Every employee must have a written employment agreement that complies with the Employment Relations Act 2000. The agreement must be signed by both parties.

Mandatory Clauses: Your employment agreement must include:

• Names of the employer and employee
• Description of the work
• Where the employee will work
• Hours of work or indication that hours may vary
• Wage or salary and how it will be paid
• Plain language explanation that employees can seek independent advice about the agreement
• Employment Relations Act protections and how to access problem resolution
• 90-day trial period clause (if applicable and your business employs fewer than 20 employees)

Probationary vs Trial Periods: Under amendments to the Employment Relations Act 2000:

• 90-day trial periods can only be used by employers with fewer than 20 employees
• Trial periods must be in writing and agreed before employment begins
• Probationary periods (which offer less protection for employers) can be used by all employers

Minimum Employment Terms: The Employment Relations Act 2000 and Minimum Wage Act 1983 establish minimum terms that cannot be contracted out of, including minimum wage rates.

Rest and Meal Breaks: The Employment Relations Act 2000 requires agreements to specify rest and meal break arrangements.

Key Legislation:

• Employment Relations Act 2000
• Minimum Wage Act 1983

Essential Elements to Include:

• Position title and reporting structure
• Remuneration details (wage/salary rate, pay frequency)
• Hours of work and overtime arrangements
• Annual leave entitlements (minimum 4 weeks under the Holidays Act 2003)
• Public holiday provisions
• Sick leave entitlements (minimum 10 days per year)
• Notice periods for termination
• Confidentiality and intellectual property clauses
• Any specific policies (health and safety, code of conduct)

Pro Tip: Have your employment agreement reviewed by an employment law specialist before using it. Getting it right from the start prevents costly problems later.

Step 5: Payroll – Outsourced vs DIY

Pros:

• Complete control over the process
• Immediate access to payroll information
• No ongoing service fees
• Suitable for very small businesses with simple pay structures

Cons:

• Significant time investment required
• Need to understand complex legislation and calculations
• Responsible for staying current with law changes
• Risk of errors that can be costly
• Need to purchase and maintain payroll software
• Must manage IRD filing deadlines and requirements
• Personal liability for mistakes

Compliance Requirements You’ll Handle:

• Calculating PAYE correctly under the Income Tax Act 2007
• Calculating ACC levies under the Accident Compensation Act 2001
• Managing KiwiSaver deductions and employer contributions under the KiwiSaver Act 2006
• Holiday pay calculations under the Holidays Act 2003 (notoriously complex)
• Student loan deductions under the Student Loan Scheme Act 2011
• Child support deductions under the Child Support Act 1991
• Payday filing to IRD within two working days

Software Costs: Expect to pay between $500-$3,000+ annually for decent payroll software, plus time spent learning and maintaining it.

Outsourced Payroll

Pros:

• Expertise and guaranteed compliance with all legislation
• Time savings – focus on your core business
• Reduced risk of errors and penalties
• Professional advice when you need it
• Software and systems included
• Keeps pace with legislative changes automatically
• Access to qualified payroll professionals

Cons:

• Ongoing service fees
• Need to provide timely information each pay period
• Less immediate control (though reputable providers offer quick turnaround)

What a Professional Payroll Bureau Does:

• Calculates all wages, deductions, and employer obligations accurately
• Files employment information to IRD on your behalf
• Manages holiday pay calculations and accruals
• Handles KiwiSaver compliance
• Processes student loan and child support deductions
• Generates payslips and payment files
• Provides year-end reporting and tax summaries
• Maintains records for the required seven years
• Keeps you informed of legislative changes affecting your obligations

Typical Costs: Professional payroll services typically charge per employee per pay period, with costs varying based on complexity. For a single employee, you might pay $15-$30 per pay period, which often proves more cost-effective than DIY when you factor in your time, software costs, and risk.

The Software Compliance Myth

Many DIY employers believe that because they’ve purchased payroll software, they’re automatically compliant. This is a dangerous misconception that creates significant risk.

The Reality: Software is Only 10-15% of the Equation

A payroll system is simply a calculator – it performs the calculations you tell it to perform based on the information you provide. The other 85-90% of compliance comes from:

• Fully understanding the legislation
• Knowing which calculations to apply and when
• Correctly interpreting employment agreements
• Understanding how different payment types interact (ordinary time, overtime, allowances, bonuses)
• Correctly calculating leave entitlements across various scenarios
• Knowing when to use Ordinary Weekly Pay vs Average Weekly Earnings
• Understanding the “otherwise working day” test for public holidays
• Correctly handling multi-rate employees, casual employees, and complex pay structures
• Staying current with legislative changes and how they affect your obligations

“The System Calculated It” is Not a Defence

When payroll errors come to light – whether through an employee complaint, Labour Inspectorate audit, or holiday pay remediation – employers often say “but the system calculated it this way.”

The Labour Inspectorate does not accept this as a viable excuse for getting it wrong. As the employer, you are responsible for:

• Ensuring calculations are correct
• Understanding what your system is doing
• Validating the outputs
• Meeting all legislative requirements

The Validation Problem

Most DIY payroll users have no way to validate whether their software’s calculations are correct. They rely entirely on the system without understanding:

• Whether they’ve set up employee records correctly
• Whether they’ve configured pay rules properly
• Whether the system is applying the correct calculation methodology
• Whether the results comply with current legislation

This creates a dangerous situation where errors can continue undetected for months or years, building up potential liability.

Real-World Consequences:

Payroll software can’t protect you from:

• Misconfiguring employee records or pay rates
• Not knowing when to use 8% or actual leave entitlements
• Incorrectly calculating public holiday payments
• Failing to pay time-and-a-half plus a day in lieu when required
• Underpaying annual leave because you used the wrong calculation method
• Missing legislative changes that affect your obligations
• Making errors in interpretation of complex scenarios

When these errors are discovered, you face:

• Remediation costs (paying the difference plus potentially many years of arrears)
• Penalties from the Labour Inspectorate
• Damage to employee relationships and business reputation
• Legal costs if disputes arise
• Significant time and stress dealing with the fallout

The Professional Difference:

When you outsource to a qualified payroll bureau, you’re not just buying software access – you’re buying:

• Expertise developed over thousands of payroll processing cycles
• Staff who understand the legislation inside and out
• Systematic validation processes to catch errors before they become problems
• Accountability – we guarantee our calculations are correct
• Continuous professional development to stay current with law changes
• Expert problem-solving when complex scenarios arise

The peace of mind knowing that someone who processes 25,000+ payslips monthly is handling your payroll is worth considerably more than the service fee.

Making Your Decision:

Consider outsourcing if:

• You have limited time to dedicate to payroll
• Your pay structures are complex (variable hours, overtime, allowances)
• You value peace of mind and guaranteed compliance
• You want to focus on growing your business rather than administration
• You’re not confident navigating employment legislation
• You can’t confidently validate whether your software’s calculations are correct
• You don’t want personal liability for payroll errors

Consider DIY if:

• You have very simple, consistent pay (same amount every week)
• You’re prepared to invest significant time in truly understanding employment legislation
• You’re confident not just running software, but validating its outputs
• You have the expertise to interpret complex legislative requirements
• You can commit to staying current with all legislative changes
• You’re willing to accept the personal liability that comes with getting it wrong

Reality Check: Most first-time employers underestimate the complexity of New Zealand employment law and payroll compliance. The Holidays Act 2003 alone has been the subject of numerous court cases and remediation projects worth hundreds of millions of dollars. Buying software doesn’t make you an expert any more than buying a scalpel makes you a surgeon. Professional help often costs less than fixing mistakes.

Step 6: Tax Obligations

PAYE (Pay As You Earn)

What It Is: PAYE is the system for deducting income tax from employee wages before paying them. The deducted tax is then paid to IRD on your employee’s behalf.

How It Works:

• Calculate PAYE using IRD’s tax codes and PAYE tables
• Deduct PAYE from gross wages each pay period
• Pay the deducted amounts to IRD (usually monthly)
• File employment information through payday filing within two working days of payday

Tax Codes: Employees provide you with their tax code (usually M, M SL, ME, etc.). If they don’t provide one, you must use the default codes set out in the Tax Administration Act 1994.

Key Legislation:

• Income Tax Act 2007 (Parts C and R)
• Tax Administration Act 1994

Employer Superannuation Contribution Tax (ESCT)

If you make employer contributions to KiwiSaver or other superannuation schemes, you must deduct and pay ESCT under the Income Tax Act 2007.

ESCT Rates: Based on the employee’s prior year’s earnings, ranging from 10.5% to 33%.

Fringe Benefit Tax (FBT)

If you provide non-cash benefits to employees (company car, low-interest loans, subsidized insurance, etc.), you may need to pay FBT under the Income Tax Act 2007.

Common Fringe Benefits:

• Motor vehicles available for private use
• Free or subsidized goods or services
• Low-interest loans
• Subsidized transport

FBT Rates: Either 49.25% (quarterly filing) or 43% (annual filing) on the taxable value of benefits.

Student Loan Deductions

If an employee has a student loan and provides a special tax code (SL), you must deduct student loan repayments at 12% of their gross earnings over the threshold under the Student Loan Scheme Act 2011.

Child Support Deductions

If IRD notifies you that an employee must pay child support, you must make the required deductions under the Child Support Act 1991.

Record Keeping

Under the Tax Administration Act 1994, you must keep payroll and employment records for seven years, including:

• Wage and time records
• PAYE calculations
• Leave records
• Employment agreements
• IRD correspondence

Penalties for Non-Compliance: Failure to deduct or pay PAYE, or late filing of employment information, can result in significant penalties and interest charges under the Tax Administration Act 1994.

Step 7: Ministry of Business, Innovation and Employment (MBIE) Obligations

Employment New Zealand HERE!

Minimum Wage Act 1983

You must pay your employees at least the minimum wage rates, which are reviewed annually.

Current Obligations:

• Adult minimum wage (20 years and over)
• Starting-out wage (certain 16-19 year olds, trainees)
• Training wage (for employees 20+ in recognized training)

Calculation: Minimum wage applies to all hours worked, including training and meetings.

Penalties: Paying below minimum wage can result in penalties under the Minimum Wage Act 1983.

Holidays Act 2003

This is one of the most complex pieces of employment legislation in New Zealand, governing leave entitlements.

Annual Leave:

• Employees are entitled to four weeks’ annual leave after 12 months’ employment
• Paid at the higher of ordinary weekly pay or average weekly earnings
• Must be taken within 12 months of entitlement (with some flexibility)

Public Holidays:

• Employees get 11 paid public holidays per year (if they fall on working days)
• Must pay at least time-and-a-half for work on public holidays, plus a day in lieu if it’s an otherwise working day
• Complex “otherwise working day” test

Sick Leave:

• Employees get 10 days’ sick leave per year after six months’ employment
• Can be used for employee illness or caring for dependents
• Unused days accumulate up to 20 days

Bereavement Leave:

• Three days for immediate family members
• One day for other relatives or close friends

Calculation Complexity: The Holidays Act 2003 requires different calculations for annual leave, ordinary weekly pay, average weekly earnings, and gross earnings. Many employers have historically gotten this wrong, leading to significant remediation costs.

Health and Safety at Work Act 2015

You have duties to ensure the health and safety of your employees and others affected by your work. This is managed by WorkSafe.

Primary Duty of Care: As a Person Conducting a Business or Undertaking (PCBU), you must ensure, so far as is reasonably practicable, the health and safety of workers and others.

Specific Obligations:

• Provide and maintain a safe work environment
• Provide adequate facilities (toilets, drinking water, rest areas)
• Ensure safe systems of work
• Provide information, training, and supervision
• Monitor worker health and workplace conditions
• Maintain communication and consultation with workers

Worker Participation: If you have 20 or more employees, you must have worker-elected Health and Safety Representatives or a Health and Safety Committee.

Notification: Certain serious injuries, illnesses, or incidents must be notified to WorkSafe immediately.

Record Keeping: Must keep records of hazards, incidents, and safety monitoring.

Key Legislation:

• Health and Safety at Work Act 2015
• Health and Safety at Work (General Risk and Workplace Management) Regulations 2016

Employment Relations Act 2000

Beyond requiring employment agreements (covered above), this Act establishes your obligations around:

Good Faith: You must deal with employees in good faith, which includes being active, responsive, communicative, and not misleading or deceiving.

Personal Grievances: Employees have the right to raise personal grievances about unjustified dismissal, unjustified disadvantage, discrimination, harassment, or duress.

Problem Resolution: Employment agreements must explain how employment relationship problems will be resolved.

Rest and Meal Breaks: Must provide and allow employees to take rest and meal breaks.

Other MBIE-Administered Obligations:

Parental Leave and Employment Protection Act 1987: Employees who’ve worked for you for 12 months are entitled to up to 26 weeks’ paid parental leave (paid by IRD) and extended unpaid leave options.

Wages Protection Act 1983: Restricts deductions from wages and requires wages to be paid in money (not kind).

Equal Pay Act 1972: Prohibits discrimination in pay rates based on sex.

Human Rights Act 1993: Prohibits discrimination in employment (covered in recruitment section).

Privacy Act 2020: Governs how you collect, use, store, and disclose employee personal information.

Step 8: KiwiSaver Obligations

Automatic Enrolment

New Employees: When you hire a new employee (who meets the eligibility criteria), you must enrol them in KiwiSaver unless they:

• Are already a KiwiSaver member (they’ll provide their details)
• Have previously opted out
• Are under 18 or over the NZ Superannuation qualification age

Enrolment Process:

• New employees have 14 days to opt out after starting employment
• If they don’t opt out, you must deduct contributions and make employer contributions from day one

Exemptions: Some employees are exempt, including those on temporary work visas, casual agricultural workers, and employees under 18 who don’t elect to join.

Employee Contributions

Rates: Employees can choose to contribute 3%, 4%, 6%, 8%, or 10% of their gross pay.

Default Rate: If the employee doesn’t choose, the default rate is 3%.

Your Obligation: Deduct the employee’s contribution from their gross pay and pay it to IRD.

Employer Contributions

Compulsory Contribution: You must contribute at least 3% of the employee’s gross earnings to their KiwiSaver scheme.

Gross Earnings: This is generally their base salary or wages plus various payments, but excludes some allowances and employer-provided benefits. The definition is set out in the KiwiSaver Act 2006.

ESCT: Your employer contributions are subject to Employer Superannuation Contribution Tax (covered in tax obligations section).

Payment: Pay both employee and employer contributions to IRD along with PAYE deductions.

Ongoing Obligations

Contribution Holiday: Employees can take a contributions holiday after 12 months. You must stop deducting their contributions but continue making your employer contributions.

Investment Statements: You must provide employees with information about KiwiSaver within seven days of their employment starting.

Record Keeping: Maintain records of all KiwiSaver deductions and contributions.

Key Legislation:

• KiwiSaver Act 2006
• Income Tax Act 2007 (for ESCT on employer contributions)

Penalties

Failure to deduct or pay KiwiSaver contributions can result in penalties and interest under the KiwiSaver Act 2006 and Tax Administration Act 1994.

Complete Legislation Reference Guide

For easy reference, here are all the key pieces of legislation that govern the employer-employee relationship in New Zealand:

Core Employment Legislation:

• Employment Relations Act 2000 – Employment agreements, good faith, personal grievances, collective bargaining
• Holidays Act 2003 – Annual leave, sick leave, bereavement leave, public holidays
• Minimum Wage Act 1983 – Minimum wage rates
• Wages Protection Act 1983 – Payment of wages, restrictions on deductions
• Equal Pay Act 1972 – Prohibition of sex-based pay discrimination
• Parental Leave and Employment Protection Act 1987 – Parental leave entitlements

Health and Safety:

• Health and Safety at Work Act 2015 – Primary duty of care, worker participation, incident notification
• Health and Safety at Work (General Risk and Workplace Management) Regulations 2016 – Specific risk management requirements

Tax and KiwiSaver:

• Income Tax Act 2007 – PAYE, ESCT, FBT, tax codes
• Tax Administration Act 1994 – Registration, filing, payment, record keeping
• KiwiSaver Act 2006 – Automatic enrolment, contribution requirements
• Student Loan Scheme Act 2011 – Student loan deductions
• Child Support Act 1991 – Child support deductions

Discrimination and Privacy:

• Human Rights Act 1993 – Prohibition of discrimination in employment
• Privacy Act 2020 – Collection, use, and storage of personal information

Other Relevant Legislation:

• Accident Compensation Act 2001 – ACC levies, work injury compensation
• Immigration Act 2009 – Work visa requirements
• Criminal Records (Clean Slate) Act 2004 – Use of criminal records in employment decisions

Common Law Obligations:

Beyond legislation, common law (court-made law) establishes additional obligations, including:

• Duty of mutual trust and confidence
• Duty to provide a safe working environment
• Duty to pay wages
• Implied terms of employment contracts

Getting Started: Your First-Week Checklist

Before Your Employee Starts:

• ☐ Register as an employer with IRD – You can do it HERE!
• ☐ Set up payroll system (or engage a payroll bureau) – Call us NOW – 0800 399 729
• ☐ Prepare written employment agreement – You can do it HERE!
• ☐ Ensure workplace meets health and safety requirements – View them HERE!
• ☐ Arrange any necessary equipment, login credentials, etc. – See these guys of you need IT Services CNX
• ☐ Understand the lingo – Glossary of Payroll Terms HERE!

First Day:

• ☐ Sign employment agreement (both parties)
• ☐ Complete IRD employee details form (IR330)
• ☐ Provide KiwiSaver information and enrolment forms
• ☐ Conduct health and safety induction
• ☐ Explain workplace policies and procedures
• ☐ Provide privacy notice about information collection

First Week:

• ☐ Enrol employee in KiwiSaver (if applicable)
• ☐ Set up employee in payroll system
• ☐ Arrange ACC cover (if not already done)
• ☐ Set up employee file with all documentation

First Pay Period:

• ☐ Process first pay correctly
• ☐ File employment information to IRD
• ☐ Provide employee with payslip
• ☐ Ensure all deductions are correctly calculated, and you have written approval for all non-statutory ones.

Calculate Your True Labour Costs

Before you commit to hiring your first employee, you need to understand the complete financial picture. The hourly rate or salary is just the beginning.

Use Our Free Labour Cost Calculator

To help you accurately calculate the true cost of employing staff, The Paymasters provides a free Labour Cost Calculator on our website.

Our calculator helps you understand:

• Total employment costs beyond just wages
• ACC levies based on your specific industry
• Employer KiwiSaver contributions (3% minimum, 4% from April 2026)
• Holiday pay obligations (annual leave, public holidays)
• Public holiday costs including penal rates
• Sick leave provisions
• All statutory costs you’re legally required to pay

Calculate your true labour costs now: https://paymasters.co.nz/labour-costs/

Why This Tool is Invaluable

This calculator is essential for budgeting and ensuring you understand the full financial commitment before you hire your first employee. Many first-time employers are shocked to discover the true cost is 30-40% higher than the base salary or wage.

Use it for:

• Setting realistic budgets before advertising roles
• Comparing the cost of employees vs contractors
• Understanding cash flow implications
• Planning for business growth
• Making informed hiring decisions

Other Resources:

• MBIE Employee Cost Calculator: business.govt.nz

Common Mistakes First-Time Employers Make

1. No Written Employment Agreement: This is a legal requirement. Verbal agreements aren’t enough.

2. Incorrect Holiday Pay Calculations: The Holidays Act 2003 is complex. Many employers get this wrong, resulting in underpayment.

3. Missing IRD Filing Deadlines: Payday filing must be completed within two working days. Late filing incurs penalties.

4. Misclassifying Workers: Treating an employee as a contractor to avoid obligations is illegal and can result in significant penalties.

5. Not Understanding Trial Periods: If your business employs 20 or more people, you can’t use 90-day trial periods.

6. Inadequate Record Keeping: You must keep employment records for seven years. Poor records lead to problems during audits or disputes.

7. No Health and Safety Policies: You must take steps to ensure workplace health and safety. Hoping nothing goes wrong isn’t a strategy.

8. Not Seeking Professional Advice: Employment law is complex. Getting it wrong is expensive. Professional advice pays for itself.

Why Professional Help Makes Sense

For most first-time employers, engaging professional help for at least the payroll function is a sound investment. A specialist payroll provider:

• Ensures compliance with all relevant legislation
• Keeps pace with law changes automatically
• Reduces your risk of costly errors
• Frees you to focus on growing your business
• Provides expert advice when you need it

Many employers find that combining professional payroll services with one-off legal advice for employment agreements provides the best balance of cost and risk management.

Next Steps

Taking on your first employee is exciting, but it’s important to get your foundations right. Here’s what we recommend:

1. Get Your IRD Registration Sorted: Do this first. Everything else flows from your employer number.

2. Invest in a Solid Employment Agreement: Have a template reviewed by an employment law specialist. It’s a one-time cost that prevents many problems.

3. Make a Payroll Decision: Honestly assess whether you have the time, expertise, and risk appetite to manage payroll yourself, or whether outsourcing makes more sense. Contact PayMasters now!

4. Set Up Your Systems: Whether DIY or outsourced, make sure your payroll and record-keeping systems are ready before your employee starts.

5. Consider Professional Support: Even if you plan to handle most obligations yourself, having access to expert advice can save you significantly when questions arise.

How We Can Help

At The Paymasters, we specialize in taking the complexity out of payroll for New Zealand businesses. With over 25 years of experience and NZPPA-certified staff, we handle all aspects of payroll compliance so you can focus on what you do best.

Whether you’re hiring your first employee or your fiftieth, we provide:

• Complete payroll processing and compliance management
• Expert advice on employment obligations
• Accurate calculation of all entitlements and deductions
• Timely IRD filing and reporting
• Peace of mind that you’re meeting all your legal obligations

Taking on your first employee is a big step. Let us help you get it right from day one.

Contact The Paymasters today to discuss how we can support your business as you grow.

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Disclaimer: This guide provides general information about employer obligations in New Zealand as at December 2025. It is not legal or professional advice. Employment law is complex and subject to change. For specific advice about your situation, consult a qualified professional.

Last Updated: December 2025