How can I be a great employer?
- What is PAYE?
- What do I pay an employee who works on a public holiday?
- What are employees’ sick leave entitlements?
- What’s the difference between holiday pay and annual leave?
- How do I calculate leave?
- How do I pay bonuses?
- How do I deal with employee leave requests if they have no entitlements?
- What are maternity leave obligations?
- Do employees need to provide a doctor’s certificate for sick leave?
What is PAYE?
PAYE, or “pay as you earn”, is tax you deduct from any wages or salary you pay to an employee and it includes an ACC earner’s levy.
It’s mandatory and there’s no getting around it. As an employer, it’s your responsibility to ensure that all your employees are being taxed accordingly.
The basic principle is that each pay period you need to calculate and deduct PAYE income tax from any wages or salary you pay to an employee. Each month you are responsible for paying these deductions to the Inland Revenue on your employees’ behalf.
Even with the most intelligent of payroll software in place, it’s still critical that you as an employer understand what PAYE tax is. So, although a good system will handle it for you, that’s no excuse for not being completely clear on what it is and how it works.
What do I pay an employee who works on a public holiday?
New Zealand has 11 public holidays each year. Regardless of how long an employee’s been working for you, they’re entitled to take these days off as paid leave.
The only way you can require employees to work on public holidays is if it’s been written into their employment contract.
If an employee works a public holiday, they are entitled to be paid time-and-a-half for the hours worked. And, if the public holiday happens to fall on a day they normally work, they're also entitled to a day in lieu.
What are employees’ sick leave entitlements?
All employees are entitled to at least 5 paid sick days per year, after they’ve been with you for 6 months. However, you can increase that if you want.
As an employer, it’s important that you’re aware of the following:
- Employees can carry sick leave over from one year to the next i.e.: they can accumulate it, unlike annual leave.
- If an employee wants to use a sick day to care for children or a spouse/partner, you must allow this.
- If an employee has worked for you less than 6 months, you can allow them to take sick leave in advance, but you don’t have to. They can take the day as annual leave, or unpaid leave.
- You can ask for a doctor’s certificate if an employee has been absent 3 or more consecutive days. If they don’t provide one or can’t prove they were really sick, you don’t have to pay them for their sick leave.
- If an employee is injured at work, they don’t have to take sick leave. That’s what the ACC levies are for. Once ACC acknowledges the accident, you must pay them 80% of their normal wages for the first week. If they’re injured outside work, they can choose to take sick leave, annual leave or unpaid leave for the first week. After that, ACC will pay them 80% of their usual salary for the time they’re off work.
What’s the difference between holiday pay and annual leave?
When a full-time or part-time employee starts a new job, they accumulate holiday pay from their start date. Holiday pay is 8% of their gross earnings and calculated in dollars.
When the employee reaches their anniversary date, their holiday pay
becomes annual leave and is calculated in hours or days. At this date,
they can take annual leave. They also start accumulating holiday pay
for the next year.
How do I calculate leave?
The amount an employee is paid for leave is based on the amount they would usually receive on the day when they took leave.
For example, an employee would receive a different hourly rate for leave on a day when they are usually paid more (for example, on a Sunday). Similarly, an employee would receive a different daily rate for leave depending on the number of hours they usually worked.
Leave rates include all pay that an employee would usually receive i.e.: regular overtime and any commissions that would have been received if they had worked.
There are several different calculations that can be used to calculate the rate an employee should be paid for leave. In all cases except for annual leave, you can choose which rate most accurately reflects the employee’s usual pay on this day. For annual leave, the highest rate is automatically selected.
How do I pay bonuses?
Bonuses are paid on top of an employee’s salary. They’re usually
performance based – in other words, you don’t have to pay the bonus if
the employee hasn’t come up to certain standards. You do need to pay
PAYE tax on them if they’re regular or frequent, but annual bonuses,
or ones that are part of a retirement or redundancy package, are
treated as lump sum payments. A good payroll system can help manage
this for you.
How do I deal with employee leave requests if they have no entitlements?
You can reasonably deny a request for leave – for example, if it’s over a busy season – but try not to decline leave requests too often as time away from the workplace is essential if you want them firing on all cylinders, and also necessary for their health and wellbeing.
If any employee hasn’t built up any leave yet, or used their entitlements, you can agree to let them take paid leave in advance.
Alternatively, you can suggest they take unpaid leave. It’s up to you, as the employer, whether to grant leave, so it’s important that you discuss with the employee the reasons for their leave and to consider each case on its merits.
For example, if the employee has run out of annual or sick leave, but they are ill or they have something important they must do, then you can let them have unpaid leave. There are ways you can shuffle their annual leave to make up for unpaid leave, or you can simply decide that the unpaid leave won’t affect their annual leave at all. Unpaid leave is broad and discretionary, and is best discussed with employees on a case-by-case basis.
What are maternity leave obligations?
After 6 months, an employee is entitled to take 18 weeks of government-paid parental leave. They’re also entitled to 52 weeks of unpaid leave, and you must keep their job open for a year.
It’s also important to be aware that:
- Parental leave can start up to 6 weeks before the birth or adoption date, or earlier if directed by a doctor, or it becomes too difficult for the employee to do their job.
- Pregnant employees are entitled to take up to 10 days of unpaid leave – this is so they can work in doctors’ appointments and other pregnancy-related factors.
- If the employee has a pregnant partner, they’re entitled to one week of unpaid leave if they’ve been with you for 6 months, and two weeks if they’ve been with you a year or more. They can take this leave 21 days before the birth or adoption through to 21 days after.
- The employee must give you at least 21 days’ notice that they’re either returning to work or not.
Do employees need to provide a doctor’s certificate for sick leave?
You can ask for a doctor’s certificate if an employee has been absent 3 or more consecutive days. If they don’t provide one or can’t prove they were really sick, you don’t have to pay them for their sick leave.
Meet your employer obligations
Being a great employer starts with
understanding what your obligations are and it is your responsibility
to ensure that all your employees are being taxed accordingly. It’s
important to have a good payroll system, like MYOB
Essentials Payroll, that automates compliance for you by keeping
you up to date with the latest IRD tax changes including ACC,
KiwiSaver and Student Loan rates. It also takes the hassle out of
running pay runs by automating payroll compliance, meeting your record
keeping requirements and of course keeping your employees happy.