From full-time to seasonal – employment types and their payroll implications
When it comes to understanding the arrangements required to correctly process payroll for the many different employment types in New Zealand, clarity isn’t just important—it’s essential. The multifaceted categories of employment range from full-time and part-time to fixed-term, casual, contractors, and seasonal workers. Whether it’s the nuances of leave calculations, the specifics of holiday benefits, or the essentials of KiwiSaver, understanding the distinct attributes of each type is pivotal for businesses aiming to uphold payroll compliance. As we discuss this, our goal is to simplify, clarify, and highlight what businesses really need to know.
Permanent employees (full-time and part-time)
Full-time employees, often recognized as the primary contributors to many businesses, usually work a standard 9 to 5, five days a week. Typically, 35 to 40 hours per week qualifies as full-time employment, although there’s no stringent legal definition by Employment Legislation.
Here’s what’s essential about their benefits:
Types of Leave: Alongside the standard annual leave, full-time employees in New Zealand can access sick leave, statutory pay, alternative leave, parental leave, bereavement leave, and family violence leave.
Annual Leave Accumulation: For a routine 40-hour week, an employee accumulates 3.08 hours of annual leave per week, culminating in 4 weeks per year ((4 / 52) x default hours).
Annual Leave Pay Rate: An important aspect to consider is that if employees work beyond their designated hours, they are entitled to the highest pay rate when comparing their Default rate, Average weekly earnings rate, and Ordinary weekly pay rate. So, while working additional hours doesn’t increase the total annual leave duration, it does boost the pay rate when annual leave is taken.
Statutory Pay: Full time employees also receive statutory pay if they normally work on the day that the public holiday falls on. Should they opt to work, they’re compensated at 1.5 times their normal pay rate. They may also be eligible to receive an Alternative Holiday (a day off to take instead) if the public holiday was an otherwise working day for them.
KiwiSaver: Starting a full-time role automatically enrolls the employee into KiwiSaver. But there’s flexibility; between the end of the second week and before the close of the eighth week, they can opt out if desired. Upon opting out of Kiwisaver, the employee should expect to receive a refund by either the IRD or the employer.
Part-time employees typically work fewer hours than their full-time colleagues. While they share many of the same entitlements, the core difference is the decreased default hours which changes the rate that the employee would accrue leave. Employment Legislation outlines that “An example of a part-time permanent employee is someone who regularly works the same 3 days a week for eight hours each day, for a total of 24 hours a week.”
Here are the key aspects of part-time employment:
Types of Leave: Just like full-time employees, part-time workers are entitled to annual leave, sick leave, statutory pay, alternative leave, parental leave, bereavement leave, and family violence leave.
Annual Leave Accumulation: Part-time employees accumulate annual leave based on their agreed-upon hours of work. For instance, if a part-timer works 24 hours per week, they would accumulate 1.84 hours of annual leave per week, culminating in approximately 96 hours per year ((4 / 52) x 24).
Annual Leave Pay Rate: Should a part-time employee work beyond their set hours, their leave pay rate increases, similar to the mechanism for full-time workers. This doesn’t mean more holidays, but a higher pay rate when annual leave is taken.
Public Holiday Entitlements: Public holidays bring specific considerations. If the holiday falls on a day that the part-time employee doesn’t usually work, they won’t receive pay for that day. For example, if an employee does not normally work on a monday, the part time employee would not be paid statutory pay for a public holiday that lands on a monday since they normally are not paid for that day. Apart from such scenarios, their public holiday entitlements remain in line with standard practices.
Fixed-term employees (Full and part-time)
Fixed-term employees work under a contract that concludes on a specific date. This arrangement is common in scenarios like parental leave coverage or temporary workload boosts.
Here’s what you need to know about fixed-term roles:
Types of Leave: Fixed-term employees also have access to the same leave entitlements as permanent staff, whether they’re full-time or part-time.
Pay-as-you-go Entitlement Option: Given the transient nature of their roles, there exists an understanding between employers and fixed-term employees. Instead of conventionally accruing annual leave, they might opt for a ‘pay-as-you-go’ approach. Here, instead of accruing leave, they receive an additional 8% of their gross pay with each payment, reflecting their annual leave entitlement. It is important to know that a proposed amendment to the Holidays Act 2003 that may be enforced as early as 2025 will remove this option.
Annual Leave Accumulation & Pay Rate: Much like regular employees, fixed-term workers accrue leave based on their default hours. If they work beyond these hours, the leave pay rate increases accordingly. However, any annual leave taken in advance is deducted from their final pay upon contract conclusion.
KiwiSaver: Fixed-term employees are eligible to join KiwiSaver, just like permanent employees. The same opt-in criteria apply.
While employment legislation doesn’t firmly pin down a definition, the general consensus identifies casual employees as those without guaranteed hours, a consistent work pattern, or ongoing commitments to remain in employment.
Here’s a more detailed look at their benefits:
Pay-as-you-go Entitlement: Given their unpredictable hours, offering annual leave to casual employees isn’t realistic. Typically, both employer and employee settle on the “paid as they go” entitlement setting. In this method, the casual employee receives an additional 8% of their pay during each payment cycle instead of standard annual leave.
Other Leave Entitlements: If any employee is employed for six months continuously then they receive 10 days of Sick Leave and are eligible for Bereavement Leave. However, for casual employees it is difficult to define whether their employment is continuous. If you are certain that they are not continuous, then the following criteria must be met. After a 6-month span, if a casual employee maintains an average of at least 10 hours weekly, and clocks in a minimum of one hour every week (or 40 hours monthly), they’re eligible for sick pay and bereavement leave.
Statutory Pay: Determining statutory pay for casuals hinges on their recent work pattern. If, say, an employee worked the preceding four Mondays, and a public holiday is on the horizon the next Monday, we’d factor in the average hours from those past four Mondays to calculate the statutory pay for the upcoming holiday.
KiwiSaver: Casual employees have autonomy when it comes to KiwiSaver. Unlike automatic enrollment for other employment types, casual employees have to initiate their KiwiSaver membership by reaching out to a scheme provider. This flexibility lets them hop in or out of KiwiSaver as per their preferences.
Contractors are quite distinct from the previous types and have a unique set of payroll rules. Contractors typically remain off the regular payroll since they’re self-employed, with the ability to handle their own taxation.
Here’s what sets them apart:
Taxation: Instead of the standard PAYE, contractors pay withholding tax based on numerous factors including the type of industry they work in. Thankfully, this is not a worry for an employer though, as like with tax codes and employees it is the contractor’s responsibility to provide their employer / customer (depending on how you look at it) with the correct tax rate. This form of tax envelops entire incomes as opposed to just wages or salaries. Importantly, it’s tailored to the specific nature of the contractor’s work.
GST Registration: Being GST-registered, contractors can reclaim the GST on their purchased goods and services. It’s an advantage that underscores their independent working status.
Absence of Traditional Entitlements: Contractors don’t receive the 8% “pay-as-you-go” or any annual leave entitlements, primarily because there’s no fixed reference point in terms of hours. Consequently, there’s no need to log work hours; they just focus on recording the overarching gross amount.
RSE (Recognised Seasonal Employer) employees
RSE workers serve as a special subset of New Zealand’s workforce. They primarily only work at particular times of the year in seasonal roles and normally only for a certain amount of time (much like a fixed term employee). They are often utilized within the horticulture and viticulture industries and earn by piece rates.
Here’s what you need to know about RSE workers and their payroll rules:
Piece Rates vs. Hourly Rates: Instead of earning per hour, RSE employers may choose for their workers to get paid for the volume of work completed. Each task, be it picking strawberries or any other, carries a distinct pay rate. However, the hourly rate is still a viable option for RSE employers to pay their RSE workers.
Minimum Wage: The pay structure may differ, but minimum wage regulations still apply. However, the RSE minimum wage, currently at $22.70, has a separate track compared to other roles. From October 1, 2023, RSE Employees will have a minimum wage of $24.97.
Leave or “Paid-as-you-go”: Like their fixed-term counterparts, RSE workers need to discuss with their employer whether they’ll accrue leave during their seasonal work or opt for the “paid-as-you-go” arrangement. If they choose to accumulate leave, they’ll receive their 8% holiday pay at the conclusion of their contract.
Leave Accrual: If an RSE worker elects to accrue leave, it’s calculated based on their gross earnings.
Seasonal Worker Superannuation Administration Service (SWSAS): Retirement savings are different for RSE workers. RSE workers aren’t typically tied to the mainstream KiwiSaver scheme. Instead, they’re integrated into the specialized Seasonal Worker Superannuation (SWSAS).
Essentially the RSE’s answer to KiwiSaver, the SWSAS is a government-led pilot program that mirrors the benefits of what IRD provides for KiwiSaver, but it’s been created for the unique needs of RSE workers and caters especially to the 18 Pacific Island National Provident Funds.
Most Pacific Island seasonal workers (RSE workers) are obligated to contribute to their retirement savings account with their home country National Provident Fund.
If you’re an employer of seasonal workers, connect with Appello Services for SWSAS registration and access details. Post-registration, employers gain access to the SWSAS Employer Portal, which provides detailed insights into each seasonal worker’s account.
What’s the difference between annual leave and holiday pay and why does it matter for employment types?
In New Zealand, under the Holidays Act 2003, the treatment of annual leave and holiday pay depends largely on the employee’s work pattern. Full-time and part-time employees, who work regular hours, accrue annual leave. After 12 months of continuous employment, they are entitled to four weeks of paid annual leave. This leave continues to accumulate from year to year if it’s not used, offering employees the flexibility to take time off when they need to while still receiving their regular pay.
On the other hand, casual employees or those with irregular work schedules receive holiday pay, which is typically calculated as 8% of their gross earnings and paid out with each pay cycle. This system is used when the employee’s work is so irregular that it wouldn’t be practical to provide four weeks of annual leave.
In the case of fixed-term employees, it’s sometimes possible to pay holiday pay ‘as you go’, but this only applies if the contract is less than 12 months, and the arrangement is specified in the employment agreement.
It’s critical to handle these entitlements correctly in payroll processing. Misclassifying a full-time permanent employee and paying them on an 8% ‘pay as you go’ basis could have significant consequences, including potential penalties from MBIE (Ministry of Business Innovation and Employment) / ERA (Employment Relations Authority) and claims for unpaid annual leave.
Employees and employers alike should remember that these rules are in place to ensure a fair and equitable system, where workers can rest and rejuvenate, regardless of their employment status or schedule. Therefore, it’s important to understand and apply them correctly.
Switching between employment types: how does this affect your payroll
When an employer in New Zealand wants to change an employee’s contract, such as transitioning a casual worker to a full-time role or vice versa, a process of good faith negotiation as outlined in the Employment Relations Act 2000 must be followed.
For example, a casual worker who becomes a full-time employee will see significant changes to their contract. Their entitlements would change from receiving holiday pay on an ‘as you go’ basis (at a rate of 8% of gross earnings) to accruing four weeks of annual leave after every 12 months of continuous employment. Conversely, a full-time employee moving to a casual role will have their annual leave entitlement changed to the 8% holiday pay included in their casual pay rate. Take note that the full-time employee will have an existing annual leave balance that must either be paid out before changing their contract or must be made available for use while they are under the casual contract.
Note: if you transition into a regular work pattern after starting as a casual employee, your employer should update your employment contract to a permanent employment agreement.
In both scenarios, it’s crucial for employers to accurately adjust these changes in their payroll systems to reflect the different leave entitlements, ensure correct salary calculations, and appropriate statutory deductions. The transition between contract types may also influence KiwiSaver contributions, student loan repayments, and PAYE tax deductions. If an employee’s salary changes, these values will need to be updated in the payroll system to ensure the employee’s pay slip correctly displays their earnings and deductions.
By doing this, employers can avoid potential harsh penalties from IRD/MBIE/ERA, maintain trust and transparency with employees, and ensure a smooth transition during contract changes. It’s always recommended to consult with a HR or payroll professional to ensure compliance with all New Zealand employment legislation and tax regulations during these changes.
How to simplify employment payroll management with a payroll system
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