Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Notice paid in lieu In some cases, an employer will include a clause in the employee’s employment agreement or in a policy agreed by the employee that the employer can choose to pay in lieu of notice at their discretion. What this means in plain language is that if applied, the employer will pay out the obligation of notice, so the employee won't need to actually work the agreed notice period. The notice period will instead be paid out. The termination date is the employ ee’s final date and not the notice period that has not been worked. • If notice is being paid out as a lump sum, then it will be taxed as an extra pay. • Payment in lieu will also be part of the 8% on termination (as it is paid in the final period of employment). • Notice paid in lieu does not extend forward like annual leave entitlement being paid out on termination. Redundancy Once a redundancy process has been undertaken with the employee, the employer may decide that the employee’s position no longer exists within the business. It may mean the employee gets paid redundancy compensation if agreed upon in the employee's employment agreement or as part of the redundancy process (as an agreed term, and payroll will need to follow what has been agreed upon). However, the bottom line for payroll is that redundancy is on notice, so this will always be part of the employee’s termination pay (the employee will work the notice or get paid in lieu). Usually, when an employee has been made redundant, they get payment in lieu of their notice period, so they don't work notice. It does not disadvantage the employee as they get notice paid out, giving them more time to look for another position. Termination based on a disciplinary In general terms, an employee can be terminated on notice (general) or without notice (serious misconduct). Payroll acts on the direction of management or HR regarding the type of situation and whether the employee needs to be paid notice. What payroll needs to do?

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

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