How do I terminate an employee?

1. Click the Pay Run menu.
2. Click the pay run that needs an employee to be terminated.

3. Click the employee name that needs to be terminated.

   Warning

   An employee included in an unfinalised pay run means you can not use the Terminate Employee feature. You will need to finalise any existing pay runs first and then process their termination.

4. Click the Actions dropdown button.
5. Click the Terminate Employee button.

6. Complete the following fields:

   • Termination date. 
   • Leave Entitlement Date (Leave as is — this gets populated automatically. This is the employee's anniversary date.) 
   • Termination reason.

   Note: Actioning the termination should be the last action completed (i.e. after leave has been applied, earnings amended, pay run inclusions applied, etc). For example if termination is triggered prior to leave being paid in the pay run, this can cause the leave to be unpaid.

7. Click the Save button.

The employee's record will turn pink (as an indicator it is in termination mode) and will display calculated earnings and any accrued leave to be paid out as part of the termination pay.

The Leave Taken Section

Regarding the Leave Taken section:

• Any leave category set to be paid out on termination will automatically be calculated as part of the termination pay. If you do not wish for this to occur, untick the checkbox for Pay out.
• If you want to pay out a balance for an associated leave category that does not have the 'Pay out' option automatically selected, you will need to manually select this option.
• Any leave categories set up to not accrue automatically will not appear in this section.

If the employee is set up to be paid default standard hours each pay and is terminated mid-pay period, then the employee's hours will automatically be recalculated on a pro-rata basis. We strongly suggest you double-check these hours to ensure they are correct.

Once you have finalised the pay run, this employee will no longer be active or eligible to be included in future-dated pay runs. The employee line will also be highlighted red. If there are any unfinalised pay runs for the employee, you will not be able to terminate them until those pay runs have been finalised.

If the terminated employee is included in a pay run for their primary pay schedule dated before their termination date, they will be included with a red asterisk (*) next to their name.

1. Click the Pay Run menu.
2. Click the pay run that needs an employee termination cancelled.
   
3. Click the employee name who needs a termination payment cancelled.
4. Click the Actions dropdown button.
5. Click the Cancel Termination button.
   

If an employee is terminated on a pay run, the corresponding Employment Information (EI) filed via Payday Filing will communicate this to the IRD. As part of this, they will automatically be marked as "Is final" and will not show on future Payday Filing submissions of the affected pay schedule.

Redundancy is not a legislated payment in New Zealand unless it is expressly written into the employment agreement or a collective agreement. This type of payment is to be taxed as an extra pay. The tax is calculated by adding up the employee's salary or wages for the last four weeks and multiplying by 13 to estimate the employee's gross annual income, then applying the applicable tax rate from the taxable income table to the redundancy payment amount. ACC levies are not deducted for redundancy payments.

Regarding PAYE on termination payments, final wages are taxed using the standard PAYE deduction tables. All other termination payments — such as payment in lieu of notice, unused alternative holidays, unused annual holiday entitlement, public holidays occurring within the annual holiday entitlement period, and 8% of gross earnings since the last anniversary date — are taxed using the extra pay tax rules.

Student loan repayments apply to termination payments only if indicated by the employee's tax code (e.g. M SL). KiwiSaver deductions apply to termination payments unless the employee has opted out of the KiwiSaver scheme or is on a savings suspension.

1. Click Employee, then List.
2. Click the employee who needs to be terminated.
3. Scroll to the bottom of the page.
4. Click Terminate Employee.
5. Enter a termination date.
6. Enter a termination reason (optional).
   Note: This process will terminate the employee and mark them as inactive. This will mean that they are no longer eligible to be included in pay runs.

If an employee is terminated using this method, they will automatically be marked as "Is final" on their last Payday Filing pay event. Please note that terminating an employee using this method will not process a termination payment, and the employee will not be notified.

Employees can only be deleted if they have not been included in any pay runs. Deleting an employee cannot be undone, and you will not be able to retrieve this data.

1. Click Employee, then List.
2. Click the employee that needs to be deleted.
3. Scroll to the bottom of the page.
4. Click Delete Employee.
5. Click Delete.

The termination pay will be calculated based on the following:

• Annual Holidays – Any annual holidays the employee is entitled to will be paid out at the higher of AWE vs OWP. Annual holidays that have been taken in advance will be clawed back at the rate they were paid out at. If the negative entitlement is a result of the opening balance, the rate will be calculated based on the rates that would have applied at the time of implementation.
• Alternative Leave – Any alternative leave balance will be paid out based on the employee’s final day of work, i.e. if the employee submits timesheets, whatever was submitted for the employee’s final day will be what the alternative leave is paid out as. If the employee was on an advanced work pattern and the hours for their final day were overridden, the alternative leave will be paid as per that overridden entry. Likewise for an employee set to submit timesheets for exceptions only, if one was submitted for extra hours on their final day, this would be considered when calculating the hours and payment for the termination alternative leave entitlement to be paid out.
• Public Holidays – Any remaining annual holidays that the employee is entitled to at the point of termination are treated as if the employee had taken them immediately after the date their employment ended. If a public holiday falls during that notional period, it needs to be paid. The platform will work this out automatically and add the payment into the termination calculations.
• Any other leave category that is setup to be paid out on termination will automatically be calculated as part of the termination pay.
• Termination 8% will be paid based on the gross earnings since the employee’s anniversary date and will include the gross earnings paid in the final pay. As per legislation, any leave paid in advance will not reduce the gross earnings for Termination 8% as they will appear as a negative earnings line in the pay run.

Here are some things to note regarding terminations and termination pay:

• If the employee is set up to be paid default standard hours each pay period and is terminated mid-pay period, then the employee's hours will automatically be re-calculated on a pro-rata basis. We strongly suggest you double-check these hours to make sure they are correct. Once you have finalised the pay run, this employee will no longer be active or eligible to be included in future pay runs and the employee line will be highlighted red.If there are any unfinalised pay runs for the employee, you will not be able to terminate them until those pay runs have been finalised.When terminating an employee that is using standard work hours, 0 hours will populate for 'reversal of leave taken in advance' for leave taken on dates falling on a weekend. A manual adjustment is required in this instance.
• The Termination Reason entered when terminating an employee does not have any impact on PAYE or ACC Levy calculations. It is a "text" or FYI field only.  Any redundancy or retirement allowances should be processed as lump-sum payments, via the Add lump sum payment option on the actions button within the employee's pay run record. Choose the Redundancy or Retirement allowance (system) pay category.