It is the employee’s responsibility to check that their final pay following redundancy is taxed correctly. Here we take a look at what should be included, and taken out, of your final pay.
If you are in the difficult situation of facing redundancy, there is a fair process your employer must follow which includes exploring redeployment options, giving written confirmation, and offering outplacement support. Your employment agreement will specify the required notice of termination of employment, and whether any redundancy compensation is to be awarded. It is your responsibility to check all of the elements of your final pay. If you have not been taxed correctly the IRD will bill you (not your ex-employer) at the end of the tax year.
So what should be included in your final pay following redundancy?
Obviously all of the hours you have worked since your previous pay should be included, right up until your finishing time on your last day.
Unused Annual Leave Or Time In Lieu
You should be paid for all of your annual leave or days in lieu which you have not taken. If you have been in the job for less than 12 months you will be paid out at 8% of your normal pay rate.
If you have been in the job for 12 months or longer your leave days will be paid out at your normal rate, and they will be treated as if you have taken a holiday immediately after finishing work. This means that you will also be paid for any public holidays which fall during that time. For example, if you finish working on 18th October this year and have 7 days of unused annual leave then your last day is actually 30th October because you will be paid for Labour Day which falls on 28th October.
Lump Sum Payments
Any redundancy compensation as per your employment agreement or resulting from redundancy negotiations should be included.
What is taken out of your final pay?
Your final pay will be subject to your normal rate of income tax. However, your tax rate may change if you are receiving a lump sum payment, so use the IRD’s income tax calculator to check your correct tax.
ACC And KiwiSaver
Both your wages and annual leave payments will be subject to the ACC levy, but any redundancy payments will not be. Likewise, KiwiSaver contributions will be taken out of your wages and annual leave payments but not out of any redundancy payments.
Student Loan Repayments
The standard 12% student loan repayment will be deducted from your total final pay (before other deductions and tax).
Child Support Payments
Your usual child support payments will be taken out of your wages and annual leave payments, but not from any redundancy payments.
Please contact us if you would like to discuss your final pay following redundancy, or any aspects of tax as it applies to you.