When an employee leaves — whether they've resigned, been made redundant, retired, or had their employment ended — PaySauce handles the necessary steps for you, including filing the employee's end date to IRD. This article covers how to terminate an employee and run their final pay (also called a termination pay or last pay), starting with a straightforward case, then special situations like redundancy, parental leave, and ACC.
Key timing rule: An employee's final pay must be paid on or before the pay day of the final pay period. This may be after their last day of work. There's no requirement to pay earlier than the normal pay day unless you've agreed that with the employee.
See Final Pay (Employment NZ) for entitlement details.
You must use PaySauce on the web (on a computer) to complete a termination pay. Final pays cannot be loaded in the PaySauce app.
Before you start: download the Termination Pay report first
Download the Termination Pay report from the Reports section before you process the final pay. Once the termination is processed, this report is no longer available. The PDF explains how the termination pay was calculated, and you'll want it for the employee's file. It can be downloaded as a PDF or CSV.
If you've already processed the pay and didn't download the report, use the "Termination Paid" report instead.
Before you start: check leave balances
Check the leaving employee's leave balances under the "Balances" tab in employee settings, and confirm all leave has been correctly recorded as taken. The final pay calculation depends on these balances being accurate, including any annual leave or holiday pay to be paid out. You can also review leave balance reports from the Reports section.
How to terminate an employee and run a standard final pay
Step 1 — Download the Termination Pay report from the reports section and save it as a PDF for your records.
Step 2 — Enter an end date. Go to Employees, select the employee, choose the "Details" tab, select "Employment" from the menu, enter their last day of work as the end date, and save.
Step 3 — Pay the final pay in your regular pay period. Select Run a Pay and view the employee's pay card. An "Include Termination Pay" checkbox will appear — select it.
If the checkbox doesn't appear, check that the end date you entered matches the pay period you're processing. It only appears when the end date falls within the pay period's date range.
Step 4 — Review and process. If the employee has standard hours and a work pattern and didn't work the full pay period, the period payment should pro-rata automatically — but review it to confirm it reflects what they actually worked. This automatic pro-rata applies only to employees on standard hours with a work pattern, not to waged or timesheet-based employees.
Click the pay preview icon to see the final pay calculation near the bottom of the preview panel. For full detail, download the Termination report from the Reports section before processing. Then calculate and process the pay as normal.
Terminating a casual employee
Before terminating a casual employee, check their leave balances for any alternative public holidays owing. For casual employees these are not added to the pay automatically — you must add each one to the pay run as a leave entry before terminating, or they won't be paid out. (Permanent employees' alternative public holidays are added automatically — see "Alternative public holidays owing at termination" below.)
Paying a final pay early in a one-off pay period
You only need a one-off pay period if the leaving employee must be paid their final pay earlier than the regular pay period is due to be paid. Submitting any pay in a period closes that period to further entry, so a separate period lets you pay only the ending employee(s).
Before creating the one-off period, remove the employee from the regular pay period. Click the edit pencil on your normal pay period and edit the included employees in the period settings.
Warning — save timesheet data first. If the employee has timesheets, record the entries (screenshot or download) before removing them from the regular period, because removing them deletes the timesheet data. To save it: open the timesheet view (clockface) under Processing at the top left, then take a screenshot or click the download arrow.
Check for PayNow deductions by clicking the magnifying glass icon on their pay card to see all payments and deductions. If a PayNow deduction is showing, contact Support — they must update it manually for you.
Create the one-off period. In Run a Pay, click "New Period" (top right). Use the same settings as the regular period, except set "Is recurring" to "No." You can open the regular period's settings via its edit pencil to copy them across. Give the new period a group name (usually employee name / final pay) so it's easy to identify in history.
Public holidays falling after the employee's final day of work
This applies only when the employee has an entitled annual leave balance (not an accrued balance). If the entitled balance is zero, no post-employment public holiday is owed and this section doesn't apply.
When a leaving employee has an entitled annual leave balance, they may become entitled to be paid for public holidays that fall after their last day of work. Take the entitled balance only (take the "balance" figure and subtract the "accrued" annual leave), then count forward from the last day of work using their usual work pattern.
Read more on the Employment NZ website: Final pay.
Worked example: Jane has an entitled balance of 40 hours and works 8 hours a day, Monday to Friday — equivalent to 5 days. Her final day of work is Friday 30 May. Counting forward 5 working days lands on Friday 6 June. Tuesday 3 June is a public holiday, so Jane is entitled to be paid for it even though it falls after her final day.
How to add the public holiday entitlement to a final pay
For a salaried employee or one on regular standard hours, do not add this as a "Public Holiday" leave item in a final pay - doing so triggers the "reduce by leave taken" setting, and this payment is meant to be in addition to the ordinary final pay. Instead, add it as a fixed-amount payment:
In Run a Pay, click the employee's name on the pay card.
Go to the Payments tab and click the + above Actions.
Choose "Rule – Fixed Amount" from the dropdown.
Enter a title describing the payment, e.g. "Payment for Labour Day."
Leave Taxable as "Yes." It'll be included in KiwiSaver if the employee is a member, so do not tick the box to exclude it.
Set Frequency to "One Off."
Enter the value of a normal day's pay for that employee.
Click the blue OK to save, then the white OK to return to the pay card.
Alternative public holidays owing at termination
A leaving employee is entitled to be paid for any alternative ("lieu") public holidays owing at the end of employment. How they're paid depends on employee type:
Employee type | How alternative public holidays are handled |
Permanent | Added automatically to the termination pay calculation in PaySauce. No action needed. |
Casual | Not added automatically. You must add each one to the pay manually before terminating, or they won't be paid out. |
Employee not returning from parental leave
If an employee chooses not to return after parental leave, their last day of employment is their last day of work before parental leave began. The final pay is calculated on their balances and earnings as at that date - the time on parental leave isn't factored in.
Earnings from any "keeping in touch" days worked during parental leave are not included in gross earnings for the termination pay calculation. There's more information here: Final pay (Employment NZ).
Contact PaySauce Support for help adjusting balances or accrual in these cases.
Ending employment while an employee is on ACC
If an employee is away on ACC when their employment ends, the end-of-employment date is the date given in their notice, not their last working day before ACC. Any leave entitlements gained during the ACC period are still owed to the employee.
Recovering a negative leave balance on the final pay
If a leaving employee has taken more leave than they had in their balance, their final pay in PaySauce processes as $0.00. PaySauce won't automatically recover the negative value as a deduction, because deductions from wages require the employee's consent. If you've taken advice and the employee has consented to the deduction, you can load the deduction in the pay details before processing the termination pay. The termination pay report shows the dollar value paid in advance of entitlement.
Tax on final pay and end-of-employment payments
In 2025, IRD introduced specific tax calculations for payments relating to the end of employment, including final pay / termination pay values and other end-of-employment payments such as redundancy.
PaySauce applies these "end of employment" tax rules according to where the payment sits:
Termination pay processed against an entered end date: applied automatically.
A lump sum / one-off payment added to the same period as the termination pay: applied automatically.
An end-of-employment payment made in a separate period before termination: not applied automatically — you must tick the "end of employment" checkbox when adding the lump sum value.
Redundancy payments and other lump sums
Add a redundancy payment using the "lump sum" option in the pay run.
The ACC earners' levy does not apply to redundancy payments, so set the "levy rate" to zero when entering the lump sum.
On whether redundancy should count as leave earnings (and so feed into the final pay calculation), the law gives no definitive answer. Employment NZ's position is that redundancy would generally be received as compensation rather than earnings, but that an employer wanting to minimise Holidays Act 2003 compliance risk could include it in gross earnings, and should seek legal advice.
Payments in lieu of notice
A payment in lieu of notice (a lump sum for time that would otherwise have been worked) is treated like normal salary or wages — it's full payment for earnings the employee would have received. You can pay it as a fixed-amount payment or as a lump sum included in leave earnings. All normal calculations apply: it's included in leave earnings calculations, KiwiSaver, PAYE, and all other relevant calculations.
Troubleshooting
A terminated employee still appears in the pay run
This usually happens when the current pay period was opened before the period in which the employee was terminated closed. To fix:
In Run a Pay, click the edit pencil next to the pay period date range.
Scroll to Employees.
If the run shows "Selected" employees, uncheck the box next to the employee's name. If it's set to "All," switch to "Selected," then back to "All."
Click OK.
A casual employee finished some time ago but still shows as active
Even with no leave to pay out, you must run a termination process to remove the leaving employee from your active list.
Go to Employees, select the employee, and open Employment on the Details tab.
Enter an End Date (format dd/mm/yyyy, or use the calendar) and save.
In Run a Pay, click the edit pencil on the current pay period, scroll to Employees, tick the box next to the employee's name, and click OK. This brings them into the current run.
On their pay card, click them down to unpaid using the X next to their name.
When the pay run closes, the system recognises the employee as terminated and removes them from the active list.
Important: because no actual transaction is filed, this end date is not filed with IRD. If PaySauce acts as your intermediary, contact Support with the employee's name and end date and we'll file it for you. If you pay IRD yourself, enter the end date via myIR in the Payroll section.
I've already processed and closed the final pay, but termination pay wasn't included
Don't reinstate the employee - this will reset the termination pay calculation and the correct amount won't show. Contact PaySauce support and we can process the termination pay.