Final pay: What must be included when you leave?

Understanding Final Pay in New Zealand

Final pay refers to the last payment an employee receives from their employer when their employment ends. This payment must include specific entitlements as outlined by New Zealand law and any applicable employment agreements.

Key Components of Final Pay

Unpaid Wages and Salary

Employers are legally required to pay an employee's wages or salary in full for all hours worked up to their last day of employment. This payment must be made at regular intervals as per the employment agreement [Source: Wages Protection Act 1983, s 4].

Accrued Annual Leave

One of the most significant components of final pay is accrued annual leave, which is annual leave that an employee has earned but not yet taken. When employment ends, an employer must pay out any accrued annual leave [Source: Holidays Act 2003, s 21(1)].

Calculation for employees employed for 12 months or more: Payment for accrued annual leave is calculated as the greater of the employee's ordinary weekly pay (the amount of pay for the employee's normal working week, including regular allowances and commissions) at the end of their employment, or their average weekly earnings (a calculation based on their gross earnings over the previous 12 months) over the 12 months before their last day of employment [Source: Holidays Act 2003, s 21(2); Holidays Act 2003, s 8; Holidays Act 2003, s 9].
Calculation for employees employed for less than 12 months: If an employee has been employed for less than 12 months, they are entitled to 8% of their gross earnings (an employee's total earnings before any deductions are made) during their employment [Source: Holidays Act 2003, s 21(4)].

Other Contractual Entitlements

An employee's final pay may also include other entitlements agreed upon in their employment agreement. These could include:

Bonuses or commissions: Any outstanding bonuses or commissions that the employee is entitled to under their employment agreement.
Reimbursement of expenses: Any legitimate work-related expenses that have not yet been reimbursed by the employer.
Payment in lieu of notice: If the employment agreement permits, an employer may make a payment in lieu of notice (a payment made by an employer to an employee instead of requiring the employee to work their notice period) when terminating employment without the required notice period [Source: Employment Relations Act 2000, s 63 (implying that terms of a written employment agreement are binding)].

What is Not Typically Included

Sick Leave

An employee's unused sick leave entitlements are generally not paid out when their employment ends [Source: Holidays Act 2003, s 69]. However, specific employment agreements may have provisions for sick leave payout, in which case the agreement's terms would apply.

Bereavement Leave

Similarly, unused bereavement leave entitlements are not paid out upon termination of employment [Source: Holidays Act 2003, s 73].

Deductions from Final Pay

Employers are permitted to make certain deductions from an employee's final pay. These include:

Tax (PAYE): PAYE (Pay As You Earn) is the system by which income tax is deducted from an employee's wages or salary by their employer. Employers are legally required to deduct income tax from an employee's final pay [Source: Income Tax Act 2007, s RD 3].
KiwiSaver: Deductions for KiwiSaver (a voluntary retirement savings scheme in New Zealand) contributions are mandatory for eligible employees unless they have opted out [Source: KiwiSaver Act 2006, s 60, s 63].
Student Loan: Deductions for student loan repayments are required by law for employees with student loan obligations [Source: Student Loan Scheme Act 2011, s 160].
Other authorised deductions: An employer may only make other deductions from an employee's wages or salary if the deduction is authorised by the employee in writing or is specifically permitted by an employment agreement for situations such as overpayments or repayment of advances [Source: Wages Protection Act 1983, s 5].

Timing of Final Pay

While there is no single statutory provision specifying the exact day final pay must be processed, employers are generally expected to process final pay promptly, often on the employee's last day of employment or the next regular payday following termination. This aligns with the good faith principle (a fundamental principle in New Zealand employment law requiring employers and employees to be active and constructive in their employment relationship) that underlies employment relationships [Source: Employment Relations Act 2000, s 4].

When to Seek Independent Legal Advice

If an employee has concerns about the calculation or timing of their final pay, or if they believe their entitlements have not been met, it is advisable to seek independent legal advice. Information and assistance can be obtained from official government bodies such as Employment New Zealand, or from Community Law Centres which offer free legal advice.