Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Holidays Act Legislative Requirements on Termination

Discretionary Payments

Under the Holidays Act, some payments made to an employee can be defined as discretionary payments. This can also apply to payments made to the employee on termination, which will not be part of the gross on which the 8% on termination is based.

Here is the definition of a discretionary payment (Holidays Act 2003, Section 5):

discretionary payment — (a) means a payment that the employer is not bound, by the employee’s employment agreement, to pay the employee; but (b) does not include a payment that the employer is bound, by the employee’s employment agreement, to pay the employee, even though — (i) the amount to be paid is not specified in that employment agreement and the employer may determine the amount to be paid; or (ii) the employer is required under that employment agreement to make the payment only if certain conditions are met.

A true discretionary payment not included in the 8% on termination would meet the following:

• Not in the employee's employment agreement • The employee did nothing they knew they had to do to get the payment (achieve KPI’s) • Was not an expectation of the employee that it would be part of their termination pay.

Example:

• An employee who has resigned is part of an additional project bonus for the work they undertook for a project as part of their termination pay.

• This was announced to the employee just before termination as an extra parting payment by the employer.

• The payment was not in the employee’s employment

agreement, the employee did not have to do anything to get the payment and had no expectation they were getting this payment (so it was totally out of the blue).

© New Zealand Payroll Practitioners Association, Mar 2026, Ver 9

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