HR Practice For Payroll Practitioners

HR Practice for Payroll Practitioners

Is notice part of redundancy compensation?

At NZPPA, we get this question all the time. Notice and redundancy compensation must be seen as two different things, being:

1. The notice period is the agreed period of time during which the employer would need to pay if an employee was made redundant (usually stated in the employee's employment agreement). This could be notice that the employee works or is paid in lieu of.

2. Redundancy compensation is an additional agreed payment to the employee for losing their job/position.

So, payroll notice will always be paid on termination for redundancy, but redundancy compensation is an extra payment that will only be paid if agreed.

Notice is not compensation for losing the employee's job/position.

How is redundancy compensation taxed, and is it included in the gross for leave?

Redundancy compensation is taxed as extra pay but has no earner levy deducted, so it is taxed at the flat tax rate.

No earner levy is being deducted because a redundancy compensation payment is a compensation payment.

Under ACC, it means the employee would move from the ACC earners account to the ACC beneficiary account as they are not earning any more. This is just for the compensation payment. All other taxable payments paid in the employee's termination pay have the ACC earner levy deducted (except if the payment exceeds the ACC earner's threshold). A redundancy compensation payment is not part of any leave calculation on termination (provided under the Holidays Act), including the 8% accrual. This again relates back to the type of payment: compensation. It could only be included when the employer has agreed to include it in the 8% on termination.

© New Zealand Payroll Practitioners Association, Sep 2024, Ver 12

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