When an employee is leaving your company, there are some actions the PayHero Administrator must take to ensure that the employee's termination payment is processed correctly and the IRD are informed.
- Include the employee in their Pay Cycle as normal. The pay can be for your regular pay cycle, regardless of when the employee is finishing - if your pay cycle is monthly but the employee is finishing just a week into the month, you can still put them in the regular monthly pay.
- If you've selected Finish Employment from the employee's settings then the pay run that covers the Finish Date you selected will automatically be created as a final pay when you create the draft pay. Alternatively, if you haven't finished the employee yet then simply open the employee's pay and from the options menu on the right, click Set as Final Pay. An Employment Finish Date field will show where you should enter their final date of employment.
This will automatically add any outstanding annual leave, alternative leave and holiday pay due.
- When the pay is sent, the employee's finish date will be included in your IRD filing for this pay period. At present, IRD don't do anything with this information, and will simply finish the employee after 3 months of inactivity. Alternatively, you can set the employee as finished manually within your MyIR account.
Holiday Pay and Annual Leave
A final pay will include:
- The 8% Holiday Pay accrued since the employee's last anniversary date (including 8% of any payments or leave in the final pay).
- Any Annual Leave Due as at the employee's last anniversary date, paid at the higher of the employee's Average Pay Rate or Ordinary Rate.
- Less any Annual Leave Taken since the employee's anniversary date, paid back at the same rate that it was originally paid at.
- Any Alternative Leave owed to the employee.
Public Holidays After Employment
If the employee has Annual Leave Due at the end of their employment, they may also be entitled to any public holidays that fall within that leave period.
PayHero cannot calculate this automatically as there are too many possible variables in an employee's work pattern and final payment entitlements. This article from MBIE explains how to work out the employee's entitlement. If the employee is entitled to a public holiday, you can add the Public Holidays pay item to their final pay.
Tax on Final Pays
A common question we receive is 'Why does the tax on the final pay differ from what the IRD calculator gives?'. We take great pride in matching the IRD calculator to the nearest cent, but this will seldom work for final pays because of the different way in which the tax is calculated.
A final pay will typically include amounts for paying out leave, and any leave payments in a final pay are taxed as an Extra Pay, which the IRD calculator isn't designed to calculate.