In the coming months there will be some changes to employment and tax laws including the minimum wage increase, some proposed changes to sick leave and one-off COVID-related leave. There are also changes to top tax rates.
If you are an employer, or you earn over $180,000 per annum, make sure you are up to date with this information.
Minimum wage increase
The minimum wage increases will take effect on 1 April 2021. Make sure you are prepared.
- The adult minimum wage will increase from $18.90 to $20
- The starting-out and training minimum wage rates will increase from $15.12 to $16
If you would like some help to plan for the impact of these changes, give us a call.
Increasing sick leave entitlement
The Government has introduced the Holidays (Increasing Sick Leave) Amendment Bill, which will entitle eligible employees to up to 10 days sick leave per year. The Bill will come into effect two months after it’s passed as law. The maximum amount of unused sick leave remains at 20 days per year.
Mondayisation of public holidays in 2021
This year a number of public holidays fall on the weekend and the holiday is therefore moved to the following Monday. This was the case for the day after New Year’s and Waitangi Day 2021 and will be the case for Anzac Day and Christmas this year. Here are some things you need to know about the Mondayisation of bank holidays.
- There is no requirement for the employee to work on the bank holiday unless it is written into their employment contract, even if they would normally work that day.
- Employees must be paid for the days they would normally work. So, if they normally work on the Monday, they must be paid holiday pay for that day, if they take it as holiday or the business closes.
- If employees work on either one of the days (the official holiday, or the Monday) they must be paid time and a half. They only get time and a half for one day, even if they work both.
- If an employee works on the holiday (either the official day or the Monday) and they would normally work that day, they are entitled to a due off in lieu.
Changes for paid parental leave
From March (exact date to be confirmed) employees will be able to apply for and manage paid parental leave on myIR. Additionally, as an employer you will no longer need to verify their income details.
COVID-19 Short-Term Absence Payment (STAP)
The Short-Term Absence Payment (STAP), a one-off payment of $350, is available from 9 February 2020, through Work and Income, to employers for employees, and self-employed workers, who:
- need to miss work to stay at home while waiting on a COVID-19 test result, and
- cannot work from home.
For self-employed workers the STAP is considered income, so must be included on their individual income tax return – IR3.
For employers, any amount passed on to the employee is “excluded income”, so is not included as income or claimable as a deduction on their income tax return. The employee pays tax on the amount they receive. Any excess amount not passed on to an employee is taxable and must be included on the employer’s income tax return.
The STAP is paid on top of an employee’s normal salary or wage for the pay period it is received in, with PAYE and their other normal deductions (such as student loans and KiwiSaver) being made from the total payment.
New top tax rate
There are currently four individual income tax rates in New Zealand: 10.5%, 17.5%, 30% and 33%. A new 39% personal tax rate on income above $180,000 will apply from 1 April next year (the 2021-22 income year).
There’s a common misconception that one tax rate applies to total earnings but remember that these are marginal tax rates: lower levels of income are taxed at lower rates than higher levels of income.
If you earn $50,000 per year (gross), tax is calculated:
- First $14,000: taxed at 10.5 percent.
- $14,0001 to $48,000: taxed at 17.5 percent.
- $48,001 to $50,000: taxed at 30 percent (‘marginal tax rate’).
- Total of $8,020 in tax, leaving a take-home pay of $41,980.
If you earn $200,000 per year (gross), tax is calculated:
- Based on current tax rates, you would pay a total of $56,920 in tax, leaving a take-home pay of $143,080.
- With the introduction of the 39% top tax rate, you would pay $58,120 in tax ($1200 more) than under the current tax rates.