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      Redundancy Compensation in a Final Pay Timesheet

      A redundancy payment is an extra payment that is based on the terms and conditions of employment, or by agreement reached. This article shows how to include redundancy compensation in a final pay.

      Updated: January 2024

      Redundancy compensation is not a legislative requirement in New Zealand. It is based on what is agreed, so it is important to note the terms of the redundancy agreement.

      Info - Blue Block (1)If you are unsure about your obligations as an employer regarding redundancy, please contact Employment New Zealand for guidance.

      What to note for payroll:

      • Redundancy compensation is taxed as an extra payment.
      • Redundancy compensation is not included in annual leave accrual calculations.
      • Student loan is deducted from this compensation, based on the repayment rate above the Student Loan threshold.
      • The following deductions are not taken from redundancy compensation:
        • KiwiSaver |  ACC Earner's Levy | Child Support Payments | IRD arrears | MSD deductions or court debt.
      • Redundancy is on notice, so the employee will either work their notice period or be paid in lieu of notice. Usually, the employee is paid in lieu of notice so this must be included in the Final Pay.

      Adding Redundancy Compensation to the Final Pay Timesheet

      Follow the steps for setting up a Final Pay timesheet as per this Help Article. Then add the Redundancy Pay Type as shown below before 'Setting the Final Pay'.

      Info - Blue Block (1)The default system 'Redundancy' pay type is taxed, as required by the IRD. If there is a non-taxable settlement or award amount to be paid, create a Non-taxable Custom Pay Type and set the payment up that way.

      FinalPay_Redundancy_Timesheet (1)
      1. Add a new row to the timesheet by clicking the right 'Add row' + sign. This will add an additional row to the final week of the timesheet.
      2. Remember to add the 'In lieu of notice' payment if the employee is paid their notice. This is done through a custom pay type. Follow the instructions in this Help Article.
        1. In this example, the custom pay type was called 'In Lieu of Notice' and set so the amount must be entered in the timesheet - $3000.

      3. In the new timesheet row, select 'Redundancy' as the pay type from the dropdown menu. Remember that this preset pay type is taxed.

      4. Go to the box directly below the final day (a) in the timesheet and add the dollar amount to be paid out.

        1. Do not input the $ sign.

        2. Use a full stop, not a comma if cents are also included.

      5. Select this tick box to exclude this redundancy payment from annual leave calculations as it pops up while your cursor is in the input box.

      6. Update and save the timesheet. 

      7. Select the 'Make this (employee's) final pay' button to set the Final Pay.

        - If you have forgotten to exclude this redundancy payment from annual leave calculations, Amend the final Pay and do the following:
      8. Left-click in the input field to access the redundancy entry costing screen and scroll down. The box is on the left, below the tracking fields.
        Remember to 'Update and Save' the timesheet and to set the final pay again.

      What happens now?

      A redundancy final pay follows the same steps as any other final pay in our system and you will see the same final pay indications on the timesheet.

      • The system will calculate the tax and other deductions. 
      • The system calculates any leave owing and includes this in the timesheet summary.
      • We notify IRD of the employee's end date through payday filing.
      • The employee's profile is archived after the final pay has been processed.

      All done. You've set up the employee's redundancy final pay.