New Zealand Labor Law: Employment Terms & Conditions

New Zealand is a high-income country with a nominal gross domestic product (GDP) per capita of US$48,781. The island country in the southwestern Pacific Ocean has a stable business environment full of opportunities for entrepreneurs seeking new prospects in primary and goods-producing industries. 

Global companies and entrepreneurs hire local talents to get the best return on their investments in New Zealand. And in doing so, they must enter into a fair employment agreement in compliance with the labor law in New Zealand that enforces minimum employer obligations, such as   

• 40 hours of weekly work, including overtime
• four weeks of annual vacation leave 
• 26 weeks of maternity leave in New Zealand for foreigners and citizens
• equal treatment and equal pay for all employees, irrespective of gender

This employer’s guide on New Zealand employment law will discuss the essential employers’ obligations of ensuring fair working hours, leave entitlements, tax and payroll management, fair employment termination, and employee privacy at the workplace. 

Applicability of the Act

Every salaried resident in New Zealand is covered under labor laws. However, certain protections under New Zealand labor law, like working hours, overtime compensation, and dismissal rules, do not apply to employees in managerial positions or higher. 

Every employer-employee relationship negotiates its unique New Zealand employment rules based on the employee rights and employer obligations mentioned in the labor laws. 

The labor law in New Zealand covers all aspects of an employment relationship, including leave entitlements, social security benefits, salary and bonus payments, and privacy at the workplace.   

Contractors (including vendors, suppliers, and freelancers) aren’t covered by New Zealand employment laws. Employers need not negotiate rights at the workplace. However, entering into an employment contract defining pay rate, frequency, and mode of payment is recommended. 

Employment Contract

Employers in New Zealand must conclude a written employment contract for both fixed-term and indefinite-term contracts. A written agreement must contain the following details per the New Zealand labor act rules: 

• The names of the parties
• The hours of work expected
• A description of the role of the employee
• A description of where the work is to be performed
• The wages or salary payable to the employee

Additionally, employers must establish guidelines for resolving employment relationship problems in the contract. Employers may provide working details of the specific provision under labor regulations in New Zealand that provides for a 90-day limit for employees to raise a personal grievance (legal claim) in relation to the termination of employment. 

Employment law in New Zealand guides employers to establish statutory trial and probationary periods.

• Employers with fewer than 20 employees can avail of trial periods and dismiss an employee within the first 90 days. 
• Employers of any size may set probationary periods for new employees or employees in a new role and dismiss them within the specified period for any business or performance-related issues. 

Employers may also negotiate an employment contract with employees in managerial positions or independent contractors who are usually outside the ambit of New Zealand labor act rules.  

Key Provisions of the Act

New Zealand labor law enlists employee rights and employer obligations for hiring and managing employees. It is derived from the following sources: 

• Statutes (Acts of Parliament) like

1. 1. Employment Relations Act 2000
   2. Bill of Rights Act 1990
   3. The Holidays Act 1981
   4. Parental Leave and Employment Protection Act 1987
   5. Minimum Wage Act 1983
   6. The Health and Safety in Employment Act 1992
   7. Privacy Act 1993
   8. The Equal Pay Act of 1972
   9. The Accident Insurance Act 1998
   10. The Human Rights Act 1993

• Common law (principles developed by courts and tribunals)
• Individually negotiated employment contracts

Here’s an account of the critical provisions of the New Zealand labor code, including working hours, leave schemes, payroll taxes, reporting obligations, dismissal rules, and data protection. 

Working hours

• The average working hours per New Zealand labor law is 40 hours a week and five days a week across employment sectors. 
• The New Zealand working hours law allows employers-employees to mutually agree on higher working hours. 
• The labor act rules in New Zealand require employers to include the following in the employment contract:

1. 1. The number of hours
   2. The start and finish times, or
   3. The employee’s working days of the week.

• The New Zealand labor code restricts employers from compensating for working without breaks in other forms (financial compensation or time off work). 

Overtime 

• The labor regulations in New Zealand do not impose statutory obligations on employers to pay employees for overtime work. 
• Individual employment contracts or collective bargaining agreements decide overtime rules. 

Minimum wage

Employers must ensure minimum wage is given to their employees unless a higher salary is negotiated. The current minimum wage is set at $21.20 per hour in 2022. 

• The Minister for Workplace Relations and Safety reviews the minimum wages annually, to take effect 1 April each year.

Public holidays 

• New Zealand labor law prescribes 12 public holidays per year, including

1. 1. New Year’s Day – 1 January
   2. Waitangi Day – 6 February
   3. Good Friday – varies
   4. Easter Monday – varies
   5. ANZAC Day – 25 April
   6. King’s Birthday – 1st Monday in June
   7. Matariki – varies
   8. Labour Day – 4th Monday of October
   9. Christmas Day – 25 December
   10. Boxing Day – 26 December

• New Zealand labor regulations limit public holidays to four days over the Christmas or New Year period. 
• Public holiday on Anniversary day depends on the work location.

1. 1. For example, an employee who is usually based in Auckland but is temporarily in Wellington is entitled to celebrate the Anniversary day of Auckland.
   2. If they were to work on the day (for being in Wellington for work-related reasons), the employers must pay time and a half, plus an alternative day.

• An alternative day is a day off at another time awarded to employees who had worked on a public holiday.
• Public holidays falling on a weekend: Employment law in New Zealand guides employers to move public holidays to Monday (or sometimes Tuesday) if it falls on a Saturday or a Sunday. 
• A public holiday within a leave period: New Zealand employment rules oblige employers to pay employees for public holidays falling within a period of leave such as annual leave, business close-down period, or planned time off. 

Leave schemes

Maternity and Paternity leave:

• Maternity leave in New Zealand is clubbed with parental leave provisions under New Zealand labor act rules.  
• New Zealand’s paid maternity leave entitlements for employers who have worked for at least six months include
  1. Ten days of special leave (for pregnant employees) covering antenatal classes or doctor’s appointments
  2. 26 weeks of paid primary carer leave
• The labor regulations in New Zealand prescribe 52 weeks of extended unpaid parental leave (including 26 weeks of parental leave) for employees who have worked for over 12 months. 
• New Zealand employment rules also prescribe two weeks of unpaid paternity leave for employees who have worked for at least six months. 

Annual leave:

• New Zealand’s labor act rules prescribe four weeks of annual leaves for employees who have worked for over 12 months with the same employer. 
• Employers must ensure employees take at least two of the four weeks’ annual holidays continuously.
• New Zealand employment law allows employees to cash up to one week of entitled annual leave. 

• For employees currently in employment for a period of fewer than 12 months,

1. 1. Employers may grant annual holidays in advance for exceptional employees. 
   2. Employers must pay out any outstanding annual holidays at 8% of the employee’s total before-tax earnings if the employment contract is terminated. 

Other leaves 

Sick leaves:

• The labor regulations in New Zealand mandate employers to grant at least ten days of sick leave. 
• Employers may request proof of illness if the employee utilizes sick leave for three or more consecutive days.
• Sick leave is paid time off work if an employee, their spouse, or dependents are sick or injured.
• Sick leave entitlements usually vary depending on the time worked for the same employer. 

Bereavement leaves

• Employers may grant bereavement leave to employees who have worked continuously for over six months. 
• New Zealand employment rules provide a minimum of three days per bereavement. 

Family violence leaves

• Employers must attend to employees affected by domestic violence and grant them leave accordingly:

1. 1. Up to ten days of leave, including sick, annual, or bereavement leave.
   2. Offer short-term flexible working arrangements for up to 2 months
   3. Ensure fair treatment in the workplace 

Stress leave

• New Zealand labor law emphasizes mental health and well-being in the workplace and thus has special provisions for stress leave. 
• Employers must grant leave to employees facing the following issues at the workplace:

1. 1. an unreasonable workload
   2. workplace bullying
   3. lack of health and safety precautions against hazards
   4. workplace restructuring

• The terms of leave, whether paid or unpaid and the duration of stress leave shall be negotiated. 

Defense force volunteers and Jury service leave

• Employers must permit employees to take unpaid leave to undergo training or service for the Armed Forces or undergo jury service. 
• Employers must ensure the job position and employee entitlements are protected during the period. 

Payroll taxes & obligations

The financial year in New Zealand runs from 1 April to 31 March. Here is a brief account of payroll tax obligations for employers per New Zealand labor laws –   

• A registered employer in New Zealand is required to:

1. 1. Deduct social security contributions and withhold taxes from the salaried employee
   2. Pay social security premiums to authorized departments & file withheld taxes to the Inland Revenue Department (IRD) the following month

• Income taxes deduction

1. 1. Income taxes in New Zealand are progressive and covered under the PAYE scheme, pay-as-you-earn. 
   2. Visit this page to learn about New Zealand’s latest income tax deduction rate (10.5% – 39%). 

• Social security contributions

1. 1. New Zealand labor law mandates employers to deduct premiums for ACC – New Zealand’s accident insurance scheme, and KiwiSaver – a work-based retirement savings scheme. 

Payslip

A payslip can be a handwritten note from a company accountant produced upon request or a digital record sent to employees periodically.  

While the labor code in New Zealand has not prescribed any template for payslips, employers must include the following details in the employee payslip:

• Establishing the identity of employer and employee, including name, address, tax identification number (IRD number), etc. 
• Gross pay for that pay period and pay rate
• PAYE deductions and any other deductions you made (such as KiwiSaver or student loan payments)
• Record the working hours & employee absence 
• Date of salary payment 
• Total amount paid 

Employee termination

New Zealand employment law regarding termination allows employers to terminate employment contracts with minimum statutory obligations. 

• Dismissal rules:

1. 1. Common reasons to dismiss an employee may include serious misconduct, performance issues, redundancy, incompatibility, or incapacity.
   2. New Zealand employment law termination law obliges employers to present a written statement of the reasons for the dismissal of permanent employees. 

• Notice period:

1. 1. The labor law in New Zealand mandates employers to give a notice period before ending the employment contract for a valid reason. 
   2. Depending on the job role, the notice period in New Zealand may be anywhere between two to four weeks.
   3. Employers may retrieve company properties like IT devices and conduct an exit interview during the notice period. 

• Final pay

1. Employers must ensure the following in the employee’s final pay, ie., payment upon employment termination:
   1. payment for all the hours worked from the last payment until the end of employment
   2. any payment dues related to annual holidays, public and alternative holidays 
   3. details on any authorized deductions

Data protection and employee privacy

Employers may follow the below guidelines issued under the privacy act in New Zealand to process personal information: 

• Collection: Seek written consent prior to collecting data for a legitimate business purpose
• Correction: Allow individuals to access and correct the information if needed. 
• Disposal: Employers must dispose of information securely and permanently as soon as the purpose is met. 

Such personal information usually relates to the names, photographs, phone numbers, home addresses, or email addresses of employees or job applicants. 

Employers may set up their privacy policy based on standard global practices to ensure minimum liability arising out of employee surveillance at the workplace or background checks during employment. 

Penalties 

Employers are fined for not obliging to New Zealand labor law provisions like workplace safety, leave entitlements, fair dismissal, etc. 

In most cases, a penalty of up to $10,000 is levied for breaching NZ employment rules where the employer is an individual. However, if the employer is a company or other corporate body, the penalty amounts to $20,000. There may be higher penalties for serious breaches of the law, say repeated violations. 

Compliance Strategies for Employers

Employers may ensure compliance with New Zealand labor law while hiring local talents using the following strategies: 

• Hiring through employment contracts:

1. 1. Employers may negotiate employment terms as per the labor act rules in New Zealand. 
   2. Employers shall draft employment contracts with working conditions and other statutory employee rights.  

• Managing employees through an in-house HR team:

1. 1. Companies with 20 or more employees should develop an in-house team of HR experts specializing in New Zealand employment law. 
   2. HR experts can help employers avoid legal liabilities arising out of hiring and managing local employees. 
   3. They draft job-specific employment contracts, manage payrolls, and ensure compliant hiring. 
   4. HR managers also ensure safe workplace conditions and can deal with structural changes, layoffs, employee appraisals, etc. 

• Using third-party SaaS-based solutions for payroll management

1. 1. Global companies and entrepreneurs are quickly moving to contemporary SaaS-based HR solutions like Multiplier for compliant hiring and managing employees globally. 
   2. Such third-party solutions can help draft employment-related legal documents, payroll management, or background checks. 

How Can Multiplier Help?

Multiplier is a leading PEO/EOR platform offering employment-related services like automated contracts, filing taxes online, calculating social security obligations, and enabling easy salary payments at the click of a button. 

Hundreds of entrepreneurs and global companies have switched to Multiplier for compliant expansion in 150+ countries, including New Zealand. Multiplier is fully operational to support international companies and entrepreneurs looking to hire and manage local talents in compliance with New Zealand labor laws. 

Additionally, employers can collaborate with Multiplier to generate multi-lingual employment contracts and related legal documents to simplify hiring and managing employees in New Zealand.