How to pay a termination payment in NZ

About

When the payroll process for terminating an employee is complex and the following is our understanding of the steps that should be considered in calculating a final pay for an employee. This information has been sourced from the [www.employment.govt.nz] website and given its complex nature we suggest confirming any questions with the department of labour or independent legal advice.

Steps Involved in Calculating a Termination Pay

The following is a list of the steps that are taken when calculating a final pay for an employee.

1. Notice Period Payout

Check to see if there is a notice period applicable for the employee - this will be in their employment contract.

Employee gives required notice If the employee gives the required notice the employer must pay the employee to the end of their notice period. If the employer asks the employee not to work the full notice period then the employer must pay the employee instead of notice. Payment instead of notice can only be made if it’s in the employment agreement or is mutually agreed between the parties. If the employee asks the employer to waive all or some of their notice period then, if the employer agrees, they won’t need to pay the employee for this time.

Employee doesn’t give the required notice If an employee gives less than the agreed amount of notice, the employer doesn’t have to pay the employee for time after the last day they actually worked.

The employer may also be able to deduct pay in lieu of notice from any amount already owed to the employee.

For a termination pay calculation, the notice period is paid at the rate specified in their employment agreement.

2. Annual Leave Payout

If the employee has any annual leave owed (ie they have worked in excess of 12 months and accrued 4 weeks leave) then they are to be paid this leave (less any leave that has already been taken). This leave is paid at the Ordinary Weekly Pay or Average Weekly Earnings rate (ie which ever of these rates is greater = the rate used to calculate Annual Leave Payout)

3. Payment for Public Holidays in Termination Process

Where an employee has an annual leave balance owing (per step 2) the employer must factor this leave into their termination pay calculations. In effect, the number of weeks owed is added on to the termination date and if there is a Public Holiday (Stat Day) that falls in that extended period then the employee must be paid for that day if they would have been otherwise working.