Termination Essentials

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NZPPA Certificate in Payroll Termination Essentials [Level 4]

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NZPPA Certificate in Payroll Termination Essentials (Level 4)

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NZPPA Certificate in Payroll Termination Essentials (Level 4)

Contents

Introduction ............................................................................ 6 Module 1: Reason for termination & legal factors .........................9 Resignation ................................................................................................ 10 Skill Check 1 - Resignation ..................................................... 13 Redundancy ............................................................................................... 14 [EmploymentNZ] Redundancy ................................................. 16 Workplace change process .................................................................... 16 To end an employment relationship, notice must be given by one party (the employee or employer) to the other party. ........ 16 Redundancy is a last option .................................................................. 16 Notice of redundancy ............................................................................. 17 Redundancy compensation ............................................................... 17 Skill Check 2 - Redundancy..................................................... 22 Disciplinary ................................................................................................. 23 Retirement .................................................................................................. 25 Abandonment of employment..................................................................... 26 Skill Check 3 – Disciplinary, Retirement & Abandonment ............ 28 Not returning from parental leave ............................................................... 29 Employee not returning to work from parental leave .................................. 29 What happens when an employee does not return from parental leave?30 If the employee does not return from parental leave what termination date should be used in payroll? .................................. 30 What about if the employee has worked while on parental leave? .................................................................................................... 30 Employee made redundant while on parental leave...................................31 Period of preference ............................................................................... 32 Termination when an employee is on a trial period .................................... 33 Long term sickness (Incapacity) ................................................................. 34 Not returning to work from ACC ................................................................. 36 Skill Check 4 – Not returning from parental leave, Termination from a trial period, Not returning to work from ACC........................... 37 Death of an employee ................................................................................ 38 Frustration of contract (Force Majeure) ...................................................... 39 How frustration could occur .................................................................. 39 Skill Check 5 – Death of an employer, Frustration of contract...... 41 Standard Termination Employment Agreement clauses .............. 42 Termination clause ..................................................................................... 42 Notice period .............................................................................................. 43 Deduction of money from employee pay .................................................... 43 Redundancy compensation ........................................................................ 44 When a final pay will be paid ...................................................................... 45 Additional special agreed terms ............................................... 46 Garden Leave ............................................................................................. 46 Bonding Agreement.................................................................................... 47 Training Bond Agreement ....................................................... 48

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Skill Check 6 – Employment Agreement Clauses & Special Agreed Terms .................................................................................. 49 Module 2: Legislative payments made as part of a termination pay ........................................................................................... 50 Holidays Act Legislative Requirements on Termination ............................. 51 Discretionary Payments .......................................................................... 51 Pay an employee terminates while receiving “Pay as You Go”, 8% ....... 52 Calculation of Annual Holiday Pay if Employment Ends within 12 Months ................................................................................................................ 53 Annual holiday entitlement paid out on termination after 12 months.......54 Calculation of Annual Holiday Pay If Employment Ends Before Further Entitlement Has Arisen ........................................................................... 55 Payments may be cumulative ................................................................. 56 Skill Check 7 – Holidays Act Sections 28, 23, 24 & 25 ................ 58 Extending annual holiday entitlement on termination.............................. 59 Payment for Alternative Holiday ................................................................. 60 Skill Check 8 – 8%, Extended from Termination Date and Alternative Holiday ................................................................ 61 The calculation for annual holiday entitlement paid out on termination earned while on ACC .............................................................................. 62 Employee not returning to work from parental leave............................... 63 Employee made redundant while on parental leave ...............................64 Employee returns from parental leave and then terminates ...................65 Skill Check 9 – ACC & Parental Leave on Termination................. 66 Exit inducement payments...................................................................... 67 Restrictive Covenant Payments.............................................................. 68 Personal grievance payments................................................................. 69 Points to note: ..................................................................................... 69 Skill Check 10 – Exit, Restrictive and PG’s ................................ 71 Module 3: Common agreed payments that payroll may do as part of a termination pay .............................................................. 72 • Additional agreed annual leave ..................................................... 72 What is notice?........................................................................................... 73 Notice when worked ............................................................................... 73 Notice paid in lieu ................................................................................... 75 Redundancy............................................................................................ 75 Termination based on a disciplinary ....................................................... 75 Skill Check 11- Notice ............................................................ 76 Bonus, commission payments.................................................................... 77 Long Service Leave.................................................................................... 78 Toil ............................................................................................................. 78 Additional agreed annual leave .................................................................. 79 Taxable allowances .................................................................................... 79 Reimbursing allowances ............................................................................ 79 Skill Check 12 – Agreed Additional Payments ............................ 80 Module 4: Deductions from a termination pay ........................... 81 Wages Protection Act 1983 ........................................................................ 82 Making deductions to an employee’s wage or salary on termination .............................................................................................. 82

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Skill Check 13 – Deductions (Wages Protection Act)................... 85 Government deductions and how they are applied to a termination pay ....86 Skill Check 14 - Government Deductions .................................. 87 Module 5: Tax treatment for payments paid on termination ........ 88 How leave provided under the Holidays Act is taxed.................................. 89 Extra pays (Lump sum paid termination) .................................................... 90 Extra Pays – Defining the 4 weeks............................................................. 91 Payment from Holidays Act Remediation ................................................... 92 Skill Check 15 - Extra Pays ..................................................... 93 Module 6: Termination documentation ..................................... 94 What must a final pay include? ............................................................ 94 Abandonment of Employment Letter .......................................................... 95 Final Pay Employee Checklist & Questions to Ask..................................... 96 Legislative records and timeframe that employee record must be kept after termination................................................................................................ 100 Tax and IRD record-keeping................................................................. 100 For each pay period: ........................................................................ 101 This summary includes the following totals: ............................... 101 Appendix A: NZPPA Legal & Best Practice Procedure – Requirements for payroll to pay a deceased employees final pay102 Skill Check 1 - Resignation....................................................................... 106 Skill Check 2 – Redundancy..................................................................... 107 Skill Check 3 – Disciplinary, Retirement & Abandonment ........................108 Skill Check 4 – Not returning from parental leave, Termination from a trial period, Not returning to work from ACC ................................................... 109 Skill Check 5 – Death of an employer, Frustration of contract..................110 Skill Check 6 – Employment Agreement Clauses & Special Agreed Terms ................................................................................................................. 111 Skill Check 8 – 8%, Extended from Termination Date and Alternative Holiday ..................................................................................................... 113 Skill Check 9 – ACC & Parental Leave on Termination............................114 Skill Check 10 – Exit, Restrictive and PG’s .............................................. 115 Skill Check 11- Notice .............................................................................. 116 Skill Check 12 – Agreed Additional Payments.......................................... 117 Skill Check 13 – Deductions (Wages Protection Act) ............................... 118 Skill Check 14 - Government Deductions ................................................. 119 Skill Check 15 - Extra Pays ...................................................................... 119 Document Management........................................................ 121

© New Zealand Payroll Practitioners Association LTD. This is only a guide. It should not be used as a substitute for professional advice. If you have a problem, seek advice from NZPPA on info@nzppa.co.nz , before taking any action.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Introduction

There are two critical times in the lifecycle of an employee that payroll must get right: when an employee starts their employment with an employer and when their employment ends. For payroll, it is essential to fully understand the reason for termination as this will determine how termination pay is undertaken. Outside standard payroll processing a, termination pay is a business-critical activity because of the substantial risk to the business if not processed correctly and the direct impact on the employee. This course is also aimed at providing all the necessary information for the payroll practitioner to assess and fully understand what their payroll system is doing regarding termination pay (based on compliance with legislation and payroll best practices).

COURSE CONTENT

Module 1: Reason for termination & legal factors • Resignation • Redundancy • Disciplinary • Retirement • Abandonment of employment • Not returning from parental leave • Termination when an employee on a trial period • Long term sickness (Incapacity) • Not returning to work from ACC • Death • Frustration of contract

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Standard Termination Employment Agreement clauses • Termination clause • Notice period • Redundancy compensation • When a final pay will be paid

Additional special agreed terms: • Garden Leave • Bonding Agreement

Module 2: Legislative payments made as part of a termination pay • Holidays Act 2003 • Discretionary payments ▪ Terminate before 12 months ▪ Terminate after 12 months ▪ Extending leave on termination concerning upcoming public holidays ▪ Alternative Holidays ▪ How does ACC affect any annual holiday on termination • Parental Leave and Employment Protection Act 1987 • The employee does not return from parental leave • Employee returns from parental leave and then terminates • When leave must be paid in a termination pay (Holidays Act) • Extra Pay (Lump sum payments) ▪ Exit inducement payment ▪ Restrictive Covenant Payments • Personal grievance payments Module 3: Common agreed payments that payroll may do as part of a termination pay • Notice ▪ Working notice ▪ Payment in lieu of notice ▪ Extending notice • Bonus, commission payments • Long Service Leave • Toil • Additional agreed annual leave • Redundancy compensation • Retirement allowance • Reimbursing allowances

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Module 4: Deductions from a termination pay Wages Protection Act 1983 ▪ Payments owed to the employer ▪ Overpayments to be recovered

Government deductions and how they are applied to a termination pay • Child support • Student Loan • MSD deduction • Court fines • IRD 157 Notices • What payments are included or excluded in KiwiSaver Contributions made in a final pay • What payments do not have an ACC earner levy deducted in a termination pay Module 5: Tax treatment for payments paid on termination • How and in what situations are different payments taxed differently in a termination pay • How different leave payments on termination are taxed • What payments are taxed as an extra pay (Lump sum payment)

Module 6: Termination documentation • Final timesheet & payslip • What must a final pay include • Abandonment of Employment Letter • Termination Checklist • What records must be kept

LEARNING OUTCOMES

At the end of the course, participants will be able to:

• Understand the different termination situations that payroll needs to process, and the legal factors involved. • Explain the differences between legislative and agreed payments. • Calculate what is to be paid, deductions, and documentation • Calculate a range of different termination pay scenarios

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Module 1: Reason for termination & legal factors

In this section, we will discuss various reasons for terminating an employee, some driven by the employer and some by the employee. For payroll, it is essential to clearly understand the reason for termination to ensure the correct process and/or steps are undertaken. The employee ’s employment agreement or company policy should be the first call for payroll regarding what has been agreed upon regarding various types of termination situations. If not included, there may be legal steps that must be followed to ensure overall compliance. If any area is unclear, it is very important for payroll to communicate the issue to management so that clear instruction is provided.

In this section, the following will be covered:

Resignation Redundancy Disciplinary Retirement

• • • • •

Abandonment of employment

• Not returning from parental leave • Being made redundancy while on parental leave • Termination when an employee on a trial period • Long term sickness (Incapacity) • Not returning to work from ACC • Death • Frustration of contract (Force Majeure)

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Resignation At any time, an employee can resign from their position. A standard clause in an employment agreement would state the notice period the employee has to give when they resign. The notice period is usually based on how long it could take to replace the position, start the recruitment process, keep the person away from competitors, or for other operational reasons. If the employment agreement does not mention a notice period, notice periods are based on what was agreed upon at the time of resignation or precedent set in the workplace (what notice has always been used) and even on the pay period. NZPPA suggests not setting a notice period greater than a week because if an employee wants to leave but is held in the workplace, they can do much damage on the way out. In addition, if the employer does want the employee to finish their employment without working out their notice, the payment in lieu would be based on the notice period. For instance, a three-month notice period would have to be paid out if the employer wanted the employer not to work out their notice. There are four variations on how an employee may resign (providing and not providing notice to their employer): 1. The employee resigns and works out their notice period based on what was agreed in their employment agreement or based on the pay period (if no mention of notice has been included in the employment agreement). Please note: 2. The employee resigns and the employer wants the employee to leave straightaway and so pays the employee in lieu of notice. By doing this, the ex-employee can start working for another employer the very next day as the employer has paid out the obligation of notice.

3. The employee resigns, but the employer wants them to work out their notice at home (commonly known as garden leave).

4. The employee resigns but walks out and does not work their notice. In this case, the employer cannot deduct the notice period from the employee’s final pay unless the employee has given consent in the employment agreement.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

What does payroll need when an employee resigns?

If an employee resigns, payroll needs the following:

• What type of resignation is it? (look at the previous section)

• What is the final date of employment?

• What is the notice period for this employee (either agreed in the employment agreement or agreed upon at the time of resignation)? • Is there documentation for the resignation (resignation letter from the employee or instructions on what the business wants to be done for the resignation, such as payment in lieu of notice. • Are there any other potential payments that could be paid after the employee leaves their employment? (People who have commission payments paid after they leave may be entitled to a percentage of that payment). • Is there any settlement agreement involved (personal grievance). • Is there any money owed to the employer (overpayments, employee loans, or company staff accounts) It is essential for payroll to be proactive and get the message out to management that payroll must be fully informed of all details that will impact on the employee’s final pay. This is not payroll, but it gets mentioned. An employee and employer get into a heated exchange, and in the heat of the moment, the employee states they resign. This is a dangerous situation, and the employer should not just accept the employee's resignation, which could be seen as constructive dismissal. Constructive dismissal is when the employee feels that they have no choice but to resign from an employer's action. The key action for the employer is to take the heat out of the situation and tell the employee to think about it overnight and come back and meet later (usually the next day). At the follow-up meeting, if the employee still wants to resign, then detail the steps (get it in writing, notice and final day (date)) but also state that this is not what the business wanted to happen. Resigning in the heat of the moment • Have any additional special payments been agreed upon?

NZPPA Certificate in Payroll Termination Essentials (Level 4)

[EmploymentNZ] An employee’s resignation — the step-by-step process

Follow these steps to make sure employee resignations are handled professionally, protect yourself, and say ‘goodbye’ in the most constructive way possible.

Step 1. Your employee resigns

Any employee can resign at any time. If they resign verbally first, they need to follow it up with a resignation letter stating their last day of employment with you — they must give you at least the amount of notice stated in their employment contract.

If an employee leaves without giving notice, you don’t have to pay them beyond their last actual working day.

Step 2. Check their employment agreement

Make sure they’ve given you as much notice as they need to do. If they give more notice than required, you have to accept — but you can’t try to make them give more than the minimum. If you do, you could face a personal grievance case.

Step 3. Confirm their resignation in writing

Give your employee a letter to confirm their resignation, with details including:

the date

•

confirmation of the notice period

•

• that the resignation is voluntary. You can also thank them for their service to the company and wish them well with their future plans. Make sure you include a copy of this letter in your employee’s file.

Step 4. Prepare for their departure

Complete the employee exit checklist to make sure you’ve done everything you need to do.

To see the full reference go to: https://www.business.govt.nz/hiring-and-managing/ending employment/what-to-do-when-an-employee-resigns/

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Skill Check 1 - Resignation

1. Can an employee be forced not to work notice and be paid in lieu?

Yes / No

2. Is notice the same as redundancy compensation?

Yes / No

3. If an employee resigns, which of the following statements is correct?

(a) If not in the employee's employment agreement, the employer can choose to pay notice or not, and final pay can be paid three weeks after the employee leaves. (b) The employee provides a letter with a date they wish to leave based on the agreed notice period in their employment agreement. The employee works the agreed notice period and gets paid termination pay that includes agreed terms and minimum leave entitlements.

4. What is one of the most important areas to confirm when an employee resigns?

(a) Their termination date (confirmed in writing)

(b) That they have returned all company property

(d) They fill out their final timesheet

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Redundancy

The last mention of redundancy in statute law was in the Labour Relations Act 1987 (repealed), so there is no current legislative requirement for redundancy, but there is a duty of good faith. If an employee ’s employment agreement contains redundancy clauses, that is an agreed-upon term, and payroll needs to follow that agreement. The repealed Labour Relations Act had the following definition that can be seen in references, policies and even in employment agreements if a redundancy process is mentioned: “A worker’s is terminated by the employer, the termination being attributable, wholly or mainly, to the fact that the position filled by that worker is, or will become superfluous to the needs of the employer”.

What does redundancy mean for payroll?

Redundancy is a form of termination, meaning all the stated components of a final pay are processed and paid (if applicable) to the employer. However, payroll may also be involved in making a redundancy compensation payment to the employee as well based on what was agreed.

How does redundancy impact payroll?

• Management may develop a business case and want to find out from payroll what the cost is if an employee is made redundant (leave liability, other payments by agreement and if there is a redundancy compensation calculation). • The redundancy business case is provided to the employee, and the employer consults with the employee on all options (redeployment, retaining, etc.). Redundancy is the last option. • Part of the business case may be where the employer asks for voluntary redundancy, where an employee decides now that they would be happy to be made redundant without going through the formal process. If this is the case, payroll would be involved in developing the voluntary redundancy package.

• Payroll may be involved in developing potential redundancy payment figures and what else would be paid on termination.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

• An employee is given a business decision on whether their position will be made redundant if no other option is available.

• Payroll then would process a termination pay for redundancy.

If redeployed:

• If the employee is redeployed, payroll may need to change the position and location based on where the existing staff member will be working.

• There could even be a rate change or transition change in what the employee will be paid.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

[EmploymentNZ] Redundancy An employer must follow a fair process whenever they want to make an employee redundant. Redundancy is when an employer reduces their workforce because a position or positions are no longer needed. Because it’s the position that is no longer needed (not the employee), the redundancy is very likely to be unjustifiable if an employee loses their position and then is replaced by someone else in the same position. An employer must follow a proper and fair process and all redeployment options exhausted before any positions are made redundant. The reasons for the redundancy must be genuine. Workplace change process Employers cannot make someone redundant without going through the workplace change process first. Redundancy is a last option The process of redundancy, and payment of redundancy compensation (where this applies), are a last option. It should only happen after all redeployment options have been exhausted. When an employer advises an employee that they have not been successful in the redeployment process they should make sure that the employee is offered at least all of the support that is mentioned in the employment agreement or policies and/or has been mentioned in the change proposal. checking that all redeployment and alternative options have been worked through with the employee. Recheck this with the employee also • checking what date, the job is to be disestablished. Will it be needed for longer? Are there any other options for the employee to stay on longer while further redeployment options are considered? Is the employee agreeable to continue working for a while and take redundancy later? • counselling support where outplacement is not made available, or outplacement does not include counselling • outplacement support which may include: o counselling To end an employment relationship, notice must be given by one party (the employee or employer) to the other party. Things you should consider include: •

NZPPA Certificate in Payroll Termination Essentials (Level 4)

o Curriculum Vitae (CV) or Resume support o interview skills training o other training that may improve the employee's chances of future employment o career advice The notice period must be at least the length of notice referred to in the employment agreement or workplace policies. If the employee agrees you may give an extended notice period while they continue in their role, or in a special project of some sort, while the change implementation is completed (or as agreed). This can allow for other redeployment opportunities to be explored. The employee does not have to agree to a later date. Notice of redundancy If there is no specific clause in an employment agreement giving a period of notice in a redundancy situation, ‘reasonable notice’ must be given. The length of ‘reasonable notice’ depends on a variety of factors, such as: • the reason for the redundancy • the employee’s length of service • the employee’s seniority and/or remuneration package • custom, practice and industry norms • the employee’s ability to find alternative employment • the amount of compensation being paid (if any). Redundancy compensation Whether employees receive redundancy payments is dependent on the applicable employment agreements and is a matter for negotiation between the parties. However, all employees whose employment is ending due to redundancy must be given notice in terms of the employment agreement. An employer can require an employee to work out their notice. If an employment agreement mentions redundancy pay, the employer will have to pay for the redundancy. However, if an employment agreement doesn't mention any such clause, an employee isn't legally entitled to redundancy pay. If you have a workplace issue, you may want to use the Early Resolution Service to resolve it early, quickly and informally.

To see the full article go here: https://www.employment.govt.nz/ending-employment/redundancy/

NZPPA Certificate in Payroll Termination Essentials (Level 4)

What is redundancy compensation?

Redundancy compensation is an agreed-upon term in which the employer agrees to pay the employee for losing their job/position. What is paid is a matter of agreement. The employer is under no obligation to provide redundancy compensation, and this is where there may be a clause in the employee employment agreement, such as:

• No redundancy compensation is payable.

If a redundancy compensation payment has been agreed to be paid, it usually has two elements:

• time (based on the employee's length of employment) and • money (the rate at which it will be paid).

Time is usually stated in years of service, with each year related to the number of weeks that will be paid to the employee for being made redundant.

Example 1:

A typical redundancy compensation calculation clause could include:

• 4 weeks for the first year employed • 2 weeks for any subsequent year • Paid at the employee's ordinary rate of pay

The above example could mean it is unlimited, so the longer the employee has worked, the larger the redundancy compensation payment every year will be included.

Example 2:

The employee has worked for 20 years, and in the employment agreement, their ordinary rate of pay per week would be $1000. They are now being made redundant.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Using the previous example calculation, the employee would get:

Time period:

No. of years:

Rate per year

Amount to be paid:

4 weeks for the first year employed 2 weeks for any subsequent year

$4000.00

$4000

$2000.00

$38000

$42000

Capped redundancy Compensation

A variation of redundancy compensation that may be seen is where the payment is capped in the agreement. This means a limit is set on the time the redundancy compensation payment covers.

Example 3:

• 4 weeks for the first year employed • 2 weeks for any subsequent year (capped at eight weeks) • Paid at the employee's ordinary rate of pay So, the employee can get 12 weeks of compensation that covers an employee who has been employed up to a maximum of five years (even if they have been employed for 20 years).

NZPPA Certificate in Payroll Termination Essentials (Level 4)

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.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Key points for payroll:

• Does the business provide redundancy compensation payments to employees if they are made redundant?

• Has a redundancy compensation calculation been agreed upon for use?

• If an employee is to be made redundant, what is their final work day?

• Will they work their notice or have it paid in lieu?

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Skill Check 2 - Redundancy

1. Is redundancy compensation a legislative requirement in NZ?

Yes / No

2. If an employee is made redundant, at the very least, what do they get?

(a) Notice period paid

(b) An extra week of annual holidays paid out

(d) An opportunity to come back after 6 months to their old job

3. How did the decision for redundancy arrive? Select the statement that is legally correct.

(a) All other options need to be looked at before a redundancy can be justified as the only option available.

(b) The business can quickly decide that redundancy is the first course of action.

4. Is notice part of redundancy compensation?

Yes / No

5. How is redundancy compensation taxed, and is there anything special about this payment for payroll to apply?

(a) It is taxed as salary and wage and is a legislative requirement to be included in the 8% on termination for leave.

(b) Taxed as an extra pay at the flat tax rate as no earner levy is deducted and is not part of the 8% on termination.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Disciplinary

Occasionally, there could be a situation where the employer, following formal procedures, may have to terminate an employee's employment because of their action or behaviour.

This is about the employment relationship not continuing, and for payroll, termination pay will be required.

There are two types of disciplinary that can lead to termination:

• General misconduct , in which a series of warnings have been provided to the employee, has now reached the point that termination of employment is now the last option. Payroll will only know about the termination part of this process because the previous warnings are intended to help the employee get back on track. So when payroll finally actions the termination (directed by management), it could have been based on a process that has taken months to reach this conclusion (first written warning, final written warning, termination). This type of disciplinary process has notice period payable. • Serious misconduct (sometimes called summary dismissal or instant dismissal) means that because the action or behaviour of the employee is so serious (has undermined trust and confidence in the employee), the employment relationship cannot continue or be fixed, and the employee can no longer be employed.

This type of disciplinary process is not based on a series of warnings, and no notice is payable.

Example of an Ending Employment: Serious Misconduct clause from an employee’s employment agreement:

If, after following a fair process, the employer concludes that the employee has engaged in serious misconduct, the employee may be dismissed without notice.

Serious misconduct is behaviour that fundamentally compromises the employer’s trust and confidence in the employee. Serious

NZPPA Certificate in Payroll Termination Essentials (Level 4)

misconduct includes, but is not limited to:

theft

•

sexual or other assault

•

• harassment of a work colleague or customer • use of illegal drugs at work • repeated failure to follow a reasonable instruction • deliberate destruction of the employer’s property • actions that seriously damage the employer’s reputation • a serious breach of the employer’s policies and procedures.

Reference: https://eab.business.govt.nz/employmentagreementbuilder/termina tion/endingEmploymentSeriousMisconduct

Key points for payroll:

• What type of disciplinary is this termination based on (General or Serious) to determine if notice will need to be paid? • What is the final day(date) for the termination pay • Is there any settlement agreement (personal grievance) in place regarding this termination.

Important note for payroll on termination from disciplinary:

A termination based on a disciplinary outcome is a serious situation for an employer, and depending on the circumstances, an ex employee may choose to challenge the process and/or the decision to terminate their employment. It is important for payroll to ensure that their part of the process (in paying the final pay) has been done correctly, ensuring all payments by law are compliant and agreed terms have been met so it does not add to the employee's case that the employer's decision was flawed and unlawful.

For additional information, look at this EmploymentNZ reference: https://www.employment.govt.nz/resolving problems/types-of-problems/misconduct-and-serious-misconduct/

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Retirement

An employer cannot force an employee to retire as there is no age set in employment law.

There are basically two reasons for retirement:

1. Acknowledge the employee and their contribution to the organisation, and

2. Free up positions so other employees can progress through the organisation and employees don’t create a bottleneck where they sit in the same position for their career In older employment agreements (or based on the culture of the business), payroll may encounter retirement clauses where, based on the employee's time in the job (service), they can receive a payment if they meet the agreed-upon criteria and wish to retire.

Example of an employment agreement clause:

Retirement

If the employee has worked for a period of 20 years or more of full time employment and wishes to retire the company will make the following retirement payment (on application);

• Not less than 20 years, a week for each year based on the employee’s current ordinary week

• Greater than 20 years up to 30 years, a week for each year based on the employee’s current ordinary week

• Greater than 30 years and more, a week for each year based on the employee’s current ordinary week

For additional information, look at this EmploymentNZ reference: https://www.employment.govt.nz/ending-employment/retirement/

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Abandonment of employment

Occasionally, an employee may leave their position without telling the employer. This is commonly known as abandonment of employment. It is another form of termination, but in this case, the employee has terminated their employment by not coming to work and not communicating that they are not coming back. To be able to use abandonment of employment, there would need to be a clause stating that this is an option for the employer. The timeframe is an agreed-upon term and typically will be 3, 5, or 7 days.

Example of this type of clause:

If the employee has not been at work for a period of three consecutive workdays and has not communicated the reason for this absence, it will be deemed as abandonment of employment, and the employer can terminate your employment.

How the timeframe is applied is as follows:

• Employee works Mon to Friday • Was last at work on Friday • The following week, the employee does not turn up to work on Monday, Tuesday, and Wednesday (no communication) • Employee has a 3-day abandonment of employment clause • The employee could be terminated on the Thursday of that week.

Steps of what the employer needs to do before the employee is terminated in payroll:

1. A clause in the employment agreement 2. Employer tries to make initial contact 3. The employer tries to make follow-up contact 4. No contact from employee 5. The day after the abandonment ends, the employee can be terminated.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

What does payroll pay?

• There is no notice period for abandonment of employment on termination. • Pay the employee any outstanding payment for work hours (up to the last day they worked). • Pay outstanding leave entitlements. • Anything to be paid as per their employment agreement.

Optional clause:

In some employment agreements, payroll will encounter a clause where if the employee does not work their notice, it can be deducted from the employee's final pay. NZPPA advises that the business needs to contact an employment law representative and discuss this before taking action. It is important to know why the employee did not come back to work.

For additional information, look at this EmploymentNZ reference: https://www.employment.govt.nz/ending-employment/abandonment-of employment/

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Skill Check 3 – Disciplinary, Retirement & Abandonment

1. Does an employee get paid notice if they are terminated for serious misconduct?

Yes / No

2. Which of the following statements would apply if an employee were terminated based on disciplinary action?

(a) They only get their pay for their last period of employment, and any leave owed is forfeited.

(b) The employee receives all outstanding wages or salary payable to the date of termination, along with minimum leave entitlement and any agreed-upon payments payable on termination.

(c) The employee's final pay will be treated as part of a settlement agreement. All payments will be tax-free, up to $20,000, after which they become taxable.

3. What is not deducted from a retirement payment?

(a) PAYE (b) ACC Earner levy (c) Child Support

4. Is retirement a legislative requirement in NZ?

Yes / No

5. If an employee abandons their employment, from what date does payroll consider their termination date?

(a) When they last worked. (b) Their last entitlement date for annual leave. (c) The day after the agreed period of abandonment in their employment agreement. (d) The date when the employer finally tracks the employee down.

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Not returning from parental leave

Employee not returning to work from parental leave If an employee does not return from parental leave, the first day of parental leave becomes their termination date. Any annual holiday entitlement earned after that date would be lost. Any annual holiday entitlement and accrual that was present before the termination date would need to be paid out to the employee in their termination pay. Example: Employee does not return to work from parental leave Hope applies for 52 weeks of extended leave as she has been in the job for 14 months and this has been approved. Forty-nine weeks into her extended leave, she contacts her employer and tells them she won’t be returning.

Extended leave (52 weeks)

49 Weeks

First day of parental leave becomes her termination date.

Anniversary date for 4- weeks’ entitlement

If the employee does not return from parental leave, any entitlement earned while on parental leave is lost, and the termination date becomes the first day of parental leave.

Section 46. Failure to return to work If an employee who takes up parental leave and whose position is kept open by the employer — (a) fails, without good cause, to return to work at the end of that period of parental leave; or (b) informs the employer, before the end of that period of parental leave, that the employee has decided not to return to work at the end of the period of parental leave — the employee's employment shall, subject to any agreement between the employer and the employee, be deemed to have been at an end as from the day on which the period of parental leave began.

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