Employment Agreement clauses for Payroll

Why it needs to be done: Payroll does not often get the chance to comment on how employment agreements should be written but what is written within an employment agreement can impact on the work of payroll. It is important that any new clause that may link to payroll or an existing clause (that is causing problems) is commented on to the writers of the employment agreement so additional content can be added so payroll issues can be resolve, reduce or eliminated.

What we will cover: In this section we have covered some of the more common problems found in a vaguely worded employment agreements that can impact on payroll: Deduction Clause (Getting money back from employees)   Taxable Allowances Wage and Salary Payment Date KiwiSaver Employer Contribution (greater than minimum)

(Getting money back from employees) Deduction Clause (Getting money back from employees) Without written consent from the employee under the Wages Protection Act 1983 the employer cannot deduct any monies owed to the employer. By having a good quality deduction clause that covers off all of the typical situations payroll can then deduct any amount owed.

Example: That the employee consents for the employer to the deduct from their wages/salary of any of the following areas; Any leave entitlement paid in advance (can be deducted from the employee’s on-going pay or final pay).   Any overpayment (can be deducted from the employee’s on-going pay or final pay). Any company property not returned on termination (prorata its value, as per property sheet). Any cost of repairs to company property issued to the employee that has been damaged by the employee (other than normal wear and tear). Any other proven debt. If the employee withdraws their consent they agree to pay the balance or outstanding amount immediately.

Taxable Allowances One of the regular questions we get at NZPPA is about taxable allowances getting paid when an employee is on leave. In this situation the allowance is an agreed clause between the parties. The problem with paying an allowance for doing some type of work related activity

Example: “The employee will be paid a weekly taxable travel allowance on a weekly basis of $50 gross”. This clause is vague and potentially means the employee gets the allowance for every week even when not at work. Revised example: The employee will be paid a weekly taxable travel allowance on a weekly basis of $50 gross. This allowance will only be paid when the employee is at work, when on any leave this payment is not payable.

Wage and Salary Payment Date The Wages Protection Act 1983 details that an employee must know when they are to be paid. That is why when looking at an employment agreement it states a payment date. For example: Your salary will be made to you nominated bank account on the 20th of the month.

How this can be resolved: “Your salary will be processed on the 19th of each month and depending on the financial institution used by the employee is expected to be paid on the 20th of that same month. Any delay in payment is not because of any inaction of the employer”.

KiwiSaver Employer Contribution (greater than minimum) ESCT is the tax on the employer contribution (KiwiSaver & KiwiSaver Compliant Schemes). It is very important when the employer decides to pay more than the minimum of 3% (this is by agreement not by law) that the clause clearly defines how ESCT will be applied to the contribution: Tax on top of the contribution, or Tax as part of the contribution

For example: The employer agrees to pay 4% (which works out to be $1000 into the employees KiwiSaver scheme). This provides an additional 1% from the minimum employer contribution. The intention was to have ESCT taken out of the $1000 for the additional 1% but the way the clause has been written it has been interpreted by the employee as the employer (ESCT) tax is on top of the $1000.

If you have any questions, concerns or issues please contact me: David Jenkins: david@nzppa.co.nz