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.
Frequently Asked Questions
A final pay will automatically 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 in Advance, paid back at the same rate it was originally paid at.
- Any Alternative Leave owed to the employee.
Employees often take leave before it becomes due, resulting in a negative Current Leave Due balance. In a final pay, the employee still receives their full 8% Holiday Pay, and any leave taken in advance then needs to be deducted.
In these cases, you'll see 'Annual Leave Taken in Advance' pay lines added, to deduct the amounts owing.
If the employee has multiple instances of leave taken in advance, extra 'Annual Leave Taken in Advance' lines will be added to their Final Pay for each instance of leave.
The date shown on each pay line reflects the pay date of the pay the leave was originally paid in, and each deduction will reflect the rates the leave was originally paid at.
Annual Leave Taken in Advance should be deducted from a final pay at the same rate it was originally paid at. However, in cases where the leave was taken in a previous payroll system, PayHero won't know these rates, so will default to deducting the leave based on the employee's current Annual Leave Rates.
You should identify the rate the leave was originally paid at, then take the following steps:
- Contact email@example.com and our team can set up a custom pay item for you, to enable custom values to be deducted. This pay item requires special calculations, so should always be set up by our team.
- Remove the employee from the draft final pay.
- Edit the employee's Current Leave Due balance on their Leave tab to remove the leave that was taken in a previous system. For example, if the employee has a Current Leave Due balance of -2 weeks, and half a week was taken in the previous payroll system, you should update their balance to -1.5 weeks.
- Add the employee back into the draft pay, and ensure it's set as their final pay.
- Add the Previous Leave Taken pay item to the draft pay, set the Quanitty and specify the quantity (negative) and rate to apply:
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 doesn't 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.
If you've finished an employee - either by processing a final pay or finishing their employment on their employee record - there will be some restrictions to be aware of when trying to add them to pays.
If you create a new pay for the employee's Pay Cycle, the employee will be automatically included in the pay, provided their finish date isn't prior to the start date of the pay period.
If you want to add the employee to an existing draft pay, or a One Off Pay, you'll first need to navigate to People > Employees, and enable the 'Show Finished Employees' toggle:
The employee will then appear in the list of employees who are available to add to pays when you navigate back to the Payroll tab.
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 ways 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.