Deductions

If an employee is earning any sort of income, they must pay income tax. They will need:

• IRD Number - Inland Revenue(external link)
• Tax Code for individuals - Inland Revenue(external link)

Employers will deduct tax using the code employees give them when they start working. Make sure employees are using the right code, or they may be taxed the wrong amount.

If a person is a self-employed contractor, they need to pay their own tax.

Paying tax on your salary or wage – Inland Revenue(external link)

Employee or contractor?

KiwiSaver is a work-based retirement savings scheme employees can choose to be a part of.

Unless employees have opted out of KiwiSaver or have a savings suspension, employers will deduct their KiwiSaver contribution from their pay and pay it to Inland Revenue.

Employees can negotiate the terms of their employment with their employer on whether the employer’s compulsory KiwiSaver contributions are part of their total remuneration package. Whatever is agreed, the employer’s compulsory contributions are their responsibility and must be paid in addition to the employee’s gross salary or wages.

An employee’s salary or wages must never be below the minimum wage because their employer paid the compulsory KiwiSaver contribution from their salary or wages. This is also true for other superannuation schemes. Employer’s contribution to employee’s superannuation must be on top of the minimum wage.

KiwiSaver – Inland Revenue(external link)

Employers can make deductions from employee’s pay on behalf of the union: 

• to pay their union fee
• if a bargaining fee arrangement applies.

Unions and bargaining

Employers cannot just pay employees in accommodation or board. Payment for work must be in money.

Employees can agree with their employer that they will provide accommodation and that the cost of the accommodation will be taken out of the employee’s pay. This often happens if employees work in agriculture or farming. The agreement should be in writing and should clearly state what has been agreed and how much it will cost, which should be reasonable.

The amount being deducted for accommodation will be included as part of the wages when calculating if they are being paid the minimum wage.

If an employee does not have an agreement about the cost of accommodation, their employer cannot take more than 15% of the relevant minimum wage rate for board (accommodation and meals) or 5% for lodging (just accommodation).

The tenancy or accommodation agreement should be separate from the employment agreement.

Sometimes, employers might provide other goods or services such as the use of farming property or providing firewood or an animal. However, the employer cannot deduct money from an employee’s pay to cover these things unless they have agreed to it and agreed on how much they should cost.

The amount agreed will be included as part of the employee’s wages when calculating if they’re being paid minimum wage. Their payslip should show the total wage, as well as how much was deducted for the goods or services.

Employers should:

• put what was agreed to in writing, separate from the employment agreement
• employees should get advice about how these deductions might affect the tax they pay.

Occasionally, an employer can make deductions to help an employee pay debt to a lending company. This can only happen if:

• the employee has asked for or agreed to it in writing, or
• the lending company has a court order for the deduction.

If an employee asks for or agrees to the deductions, the employee can change their mind anytime and ask in writing for them to be changed or stopped. The employer needs to make the change within 2 weeks of the request.

Both the employee and their employer need to think about what will happen if the payments to the lending company stop or do not get passed on – it's a good idea to talk to a lawyer before agreeing to this type of deduction.

Employers cannot force an employee to agree to make debt payments or tell them how or where to spend their pay, and they cannot dismiss an employee because they have spent their pay in a certain way.

If an employee leaves without giving their employer the notice required in their employment agreement, the employer cannot make deductions or withhold their wages or holiday pay unless the employee agrees in writing.

If an employment agreement includes a deductions clause saying that the employer can deduct wages or holiday pay if the employee resigns without giving the required notice, the employer can only enforce it if:

• the employee was given enough time to consider and ask for independent advice on the terms and conditions of the employment agreement, and
• the employee signed the employment agreement, and
• any deductions relating to that clause are based on the actual loss suffered by the employer because the employee did not work their notice period, and how much of the notice period they did not work.

If an employer overpays an employee one time only due to miscalculations or errors such as payroll staff entering the wrong amount or computer system failures causing incorrect pay, the employer must first attempt to agree with the employee on how and when the money is to be paid back. The employer needs to get the employee’s written consent for the deductions to be made from wages. If the employer cannot get the employee’s written consent, or the employee has left the employment, the employer may consider recovering this overpayment through the Employment Relations Authority.

Employment Relations Authority(external link)

Time lost because of poor performance is not an overpayment and an employer cannot deduct wages for this.

Performance management, training and development

An employer can only deduct money from an employee’s pay without their written consent if they overpaid them and they were:

• absent from work without their agreement
• on strike
• locked out (as part of collective bargaining)
• suspended (if seeking to suspend without pay, seek legal advice).

Disciplinary process