First-time employers: Getting the basics sorted

First-time employers: Getting the basics sorted

Seeing your business grow and realising you’re ready to take on an extra set of hands is exciting! Hiring your first employee means you can spend more time focusing on growing your business. But becoming an employer is a big responsibility. Don’t worry, we’ve got you sorted. Let’s start with the basics:

Becoming an employer

Before you do anything, you’ll need to register as an employer with Inland Revenue (IRD). It’s easy and should only take a few minutes. 

You can register as an employer in two ways:

• As an individual  - Use your personal IRD number if you’re hiring as a sole trader or individual.
• As a company - Use your company IRD number if you’re operating as a registered company. 

Make sure you have the correct IRD number ready before you start the registration process. When you’ve ticked that off your list, you’ll receive confirmation that you’re set up as an employer with IRD.

You’ll need to register as an employer so you can start submitting the necessary filing to IRD. You’ll need to do the required filings for every pay for employees or contractors for whom you deduct withholding tax.

What sort of help will you have?

Before you hire, figure out whether you need an employee or a contractor. This matters as getting it wrong can cause serious problems down the track. 

Think about:

• How much work needs doing and when
• Whether you need ongoing support or project-based support
• Who’ll control how and when the work gets done

Employee vs Contractor

Earlier this year, we wrote a blog on this, diving into the differences to help you assess whether you’re bringing on a contractor or an employee. 

Below is a simple table to show some of the basic differences:

Employee

• Has an employment agreement
• Gets paid wages or salary
• You pay their PAYE tax and ACC
• Protected by employment law with rights like annual leave

Contractor

• Self-employed under a contract for services
• Invoices you for their work
• They pay their own tax and ACC
• Not covered by employment law, no entitlement to paid leave

Types of employees

If you’re bringing on an employee, work out what type suits your needs: 

Permanent - Guaranteed, ongoing employment. There’s always work to do. The contract ends when either party terminates the agreement

Fixed-term - Guaranteed employment for a set period (e.g., seasonal work, covering parental leave). Contract ends on a specific date or when a specific event happens. 

Casual - No guaranteed hours. They work when you need them and they’re available. The contract ends when they stop accepting work, or you stop offering it. 

What every employee needs:

Regardless of employment type, all employees need:

• A signed employment agreement specific to their role
• A completed tax code declaration (IR330)
• KiwiSaver forms (for those eligible for KiwiSaver)
• Any equipment needed for their role

What a contractor needs:

• A written contractor agreement or contract for services
• IRD number
• GST registration (if applicable)
• Invoicing capability
• Their own tools and equipment

Working out costs

Hiring an employee costs more than just their wage. Think about equipment, KiwiSaver contributions, ACC levies, leave, and time and money spent on any recruitment. Check out this employee cost calculator to help get the full picture before you commit. 

Paying employees

The next thing to sort is how and when you will pay your new employee. You must pay employees at least the minimum wage for every hour worked. Here are the main payment types:

Wages - Payment based on hours worked, usually an hourly rate. May include different rates in their agreement, which are special rates for doing certain tasks, working particular days, shifts, or extra hours.

Salary - A fixed annual amount. The hours to be worked should be in the employment agreement. You’ll still need to ensure you’re paying the minimum wage for every hour worked in your pay period.

Commission - Payment based on sales made or targets met. Some roles are commission-only, others combine hourly rates with commission. Either way, employees must still get at least minimum wage. 

Piece Rates - Payment per item completed (e.g., number of fruit bins picked). Minimum wage rules still apply. 

Whichever way of paying you choose, this should always be recorded in the employment agreement. 

Timesheeting

If your employees will work standard or variable hours, using timesheeting is a great way to accurately track their hours they work and ensure they’re paid correctly. 

If you want your employees to record their time worked, provide a consistent and easy-to-use method for them to log their start and finish times, breaks, and any overtime. Reviewing and approving timesheets regularly helps avoid errors and ensures compliance with agreed hours and employment agreements. If you use PaySauce, you and your employees can access mobile timesheets to enter, review and approve on the go! 

Pay frequency and pay day

As an employer, you have the flexibility to set the pay frequency and pay day that best suits the needs of your business and employees. Common pay frequencies include weekly, fortnightly, or monthly, but you can choose any reasonable schedule that works for you.

Make sure to clearly document the pay frequency and pay day in your employee’s employment agreement. If you need to change this in the future, communicate the change with your employees and give them reasonable notice. 

Payroll deductions

When you pay your employee, you’ll deduct certain amounts from their pay. If you’re using PaySauce, we make these easy for you, but they’re still useful to have an understanding of:

P.A.Y.E. (Pay As You Earn)

Tax is deducted directly from an employee’s wage or salary. You’re responsible for calculating, deducting, and filing PAYE on behalf of your employee. The amount depends on their tax code (which is chosen by the employee and will be provided to you on the completed IR330 form)  and earnings. There’s a handy calculator that can help you work this out, but if you’re with PaySauce, you’ll never have to worry about calculating PAYE again. 

ACC Earner Levy

All employees pay an ACC earners levy to cover the cost of non-work-related injuries, with IRD collecting this on behalf of ACC. This levy is deducted along with PAYE. You don’t need to do an extra calculation for this in each pay period, but it is good to understand. 

KiwiSaver

Unless an employee is exempt from automatic enrolment, all new employees are automatically enrolled into KiwiSaver. Employees tell you their contribution rate (3%, 4%, 6%, 8% or 10%) on their KiwiSaver deduction form (KS2). If they don’t choose, the default rate is 3%. You deduct this from their pay each payday. The Inland Revenue site has full details, including links for downloadable forms.

Check out our article on KiwiSaver here: https://help.paysauce.com/en/articles/11181525-kiwisaver 

Employer Superannuation Contribution Tax (ESCT) 

ESCT is a tax on your employer contributions to your employee’s KiwiSaver. The rate depends on how much they earn and how long they’ve worked for you. Full details on this can be found on the Inland Revenue website.

Student Loan, Child Support and other deductions

If your employee has a student loan, they’ll need to select the appropriate tax code which includes student loan deductions. Depending on their tax code, there are different calculations for how student loan repayments are calculated in each pay. If your employee has child support payments, they should tell you how much this is per pay. If they don’t, IRD will send you a letter asking you to deduct money from the employee’s wages. IRD will tell you how much to deduct, when to start and when to stop deducting. The value can often change, so you may need to make updates to the child support deduction from time to time when instructed to by IRD. There are special calculations for child support to ensure the employee doesn’t receive a net pay that is too low in any one period. These are called ‘protected net earnings’ and will be automatically calculated in a payroll system. There are also some special filing codes for child support that go on your filing to IRD in specific circumstances, but again, if you’re using a payroll system you shouldn’t need to worry about this at all!

Tax Codes

Every employee needs to give you their tax code so you know how much tax to take from their pay. 

Employees choose their own tax code (using the IR330 form). It’s their responsibility to pick the right one for their situation.

No tax code provided:  If no tax code declaration is given, you’ll need to deduct tax at the “non-declaration rate” of 45% until they provide you one. 

If the tax code changes: Employees must give you a new IR330 form each time their tax code changes. For example, if they were using the M SL tax code (because they had a student loan) and then paid off their student loan, they’ll need to do an IR330 to update the tax code with you.

If IRD notices an employee using an incorrect tax code, they’ll get in touch with you to change it and let the employee know they have done so. 

What’s next?

Hiring people isn’t just a one-and-done thing. You’ll have ongoing obligations around employment agreements, record keeping and staying compliant. Don’t feel overwhelmed - we’re here to help make it simple. Keep an eye out for our next blog, where we’ll cover employer and employee rights and responsibilities and how to create an employment agreement.