This article explores managing payroll for an employee on parental leave by looking at parental leave provisions such as KIT hours and what to expect from leave balances.
Updated: November 2024
In this article:
- Annual Leave Accrual and the Allocation on Anniversary Date
- Other Leave Types
- KIT Hours
- Tax Codes
- Sporadic Return To Work During Extended Leave
- Payroll Deductions
- Resources and Further Information
Follow these links to find out more about:
- Setting up Payroll for Parental Leave
- Managing Payroll for the Returning Employee
- Payroll Exit for the Employee who Does Not Return from Parental Leave
Parental Leave is an extensive period of unpaid leave but is still considered continuous employment under the Holidays Act - bringing its own challenges to payroll. Do not terminate the employee in the payroll system, or adjust starting dates.
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The system does payroll calculations when a timesheet is processed. So if your employee does not receive a pay during their parental leave period, their leave balances and accrual will not update. This is normal. |
*The system will update balances with the first timesheet processed.
Annual Leave
Under the Parental Leave and Employment Protection Act 1987, employees on parental leave are still entitled to the following, even if no employer-paid income is received:
- they continue to accrue annual leave for this period, and
- allocation occurs on the anniversary date as usual, even if this date falls during the period of parental leave.
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Note: This is based on the work pattern and leave setting as set in the Employee Profile. The work pattern was removed from this Profile as part of preparing for the extensive period of unpaid parental leave. However, the system will still calculate the allocation on the anniversary date with the first pay processed after this anniversary. *The system will update accrual and allocation balances when processing timesheets. Keep this in mind when processing KIT Hours and sporadic return to work - the allocated balance could need adjustment. |
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Please contact our Customer Team to backdate the leave setting to the updated work pattern entered in the system when the employee returns to work after the parental leave period has ended. |
Other Leave Types
- As parental leave is continuous employment, sick leave is allocated on the usual anniversary date.
- As parental leave is a period of unpaid leave (thus not considered as otherwise working days), the employee does not receive payment for public holidays, sick leave, bereavement leave, or family violence leave which falls within this parental leave period.
KIT Hours
A limit of 64 keeping-in-touch hours is allowed during the 26 weeks of government-paid parental leave. These must be agreed to by the employer and are paid at the employee's ordinary rate. To limit the effect of these agreed KIT Hours on leave balances and complications with setting a final pay if the employee doesn't return to work after their parental leave period, we suggest:
- creating a separate profile to be used for KIT Hours during the 26 weeks of government-paid parental leave, and
- Setting up a taxable Custom Pay Type to easily keep track of these hours in the payroll system.
Note that if the 64 hours are exceeded, IRD considers this a return to work - the employee's parental leave payments stop and the employee will need to repay overpaid government payments.
*Keep a close eye on these hours!
*Additional KIT Hours are available with preterm baby payments - consult IRD's website for the details.
Tax Codes
As your employee will have more than one source of income, they will need to assign a secondary tax code to the smaller income stream which could be their usual employment.
- Make sure that you have received an IR330 for each of the Tax Code changes, or you will have to use the non-declaration code which is very high.
- To update the tax code, do this in the Employee Profile (and save the change) BEFORE loading a timesheet on the dashboard. If the timesheet has already been loaded, the tax code change will not be applied to that timesheet unless you resave the timesheet.
Sporadic Return To Work during Extended Leave
Employees may return to work for multiple periods after the 26-week parental leave payment period has ended. This is by agreement and is paid at the ordinary rate as stated in the employment agreement. These periods of sporadic return do not extend the period of parental leave forward. Parental leave will end on the original end date, regardless of the number of return-to-work periods.
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As these hours are not restricted, use 'standard pay' and the employee's primary tax code in the original Employee Profile if a KIT Profile was created for this employee. *An IR330 is needed for the tax code change if a secondary tax code was provided for KIT Hours. |
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Please contact our Customer Team to check the leave allocation balance with work pattern updates. Remember, the system updates leave balances when processing pays. |
Deductions
It is worth noting that payroll deductions cease when an employee doesn't receive pay. This impacts the employee's KiwiSaver as their KiwiSaver contributions, the Employer's Contribution to their KiwiSaver and ESCT also stops. The employee should be made aware of this, so they can have plans in place to limit the impact of parental leave on their KiwiSaver.
- The employee may select to have KiwiSaver deducted from their government parental leave payments, in which case the government also contributes a 3% employer contribution.
When a timesheet is loaded for the employee, these deductions will be automatically included again for that pay, such as for KIT Hours or with sporadic return to work by agreement.