Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

Redundancy payments

A redundancy payment is based on the terms and condition of employment. There is no obligation to pay redundancy compensation to an employee in New Zealand. The decision to terminate employment is the employer’s. Redundancy payments may be made: • to an employee whose position is no longer needed, or • to a seasonal worker whose usual seasonal position is no longer needed (the employee works for you at a regular time each year for a continuous period of less than 12 months). The following are not redundancy payments, and are liable for earners’ levy: • any payment made to an employee solely because of a seasonal lay-off • any payment made at the end of a fixed-term contract or a contract for a predetermined amount of work • any payment made instead of giving an employee notice • any payment of deferred wages made to an employee when finishing work (such as holiday pay, accrued bonuses and commissions) • any payment by a company under its articles of association to any of its directors. A severance payment may be a redundancy payment for tax purposes. A lump sum severance payment made to a permanent employee when a specific job or project is finished is a redundancy payment if the position of the employee has been fully terminated, Annual and the position is no longer required by the employer. Redundancy payments are taxable but are not liable for ACC levies because a redundancy payment is considered compensation not a wage or salary payment.

What to include and exclude from redundancy payments

Student loan repayments are deducted

• If you have an employee with a student loan, then a repayment of 12% should be made from any redundancy payment they receive, unless the employee has a special tax code showing a different deduction rate.

KiwiSaver contributions aren’t deducted

• KiwiSaver contributions aren’t deducted from an employee’s redundancy payment. Also, an employer doesn’t have to make KiwiSaver employer contributions from any redundancy payments they pay the employee.

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

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