Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Personal grievance payments

At times an employee or ex-employee may consider that their employer has caused an issue in the workplace that has led to a grievance. To resolve this workplace issue, the employer may want to provide compensation (for any hurt caused to the employee or any benefit lost to the employee). This compensation payment can be taxed or paid as a tax-free compensation payment. If the payment is for hurt or humiliation, it would normally be a tax free compensation payment, and this means it does not need to go through payroll as it is not reported to IR. The reason this payment may still be paid through payroll is the confidentiality factor, rather than this type of payment being made to an employee through the business’ accounts.

The legislation that covers this type of payment is found under the Employment Relations Act 2000, section 123(1)(c)(i) and (ii):

Section 123. Remedies (1)(c) The payment to the employee of compensation by the employee's employer, including compensation for —

(i) Humiliation, loss of dignity, and injury to the feelings of the employee;

(ii) loss of any benefit, whether or not of a monetary kind, which the employee might reasonably have been expected to obtain if the personal grievance had not arisen:

Points to note:

• This type of payment is about the compensation for an employment relationship problem. It is not advisable to use this as an exit package.

• The settlement agreement should be written by someone that knows what must be included to protect the employer.

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

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