When your employee ends their employment with you, there are lots of things you need to manage within your business - luckily it's pretty straightforward to manage in payroll with PaySauce!
When you end an employee's employment in PaySauce, we'll take care of all the necessary steps for you, including filing the employee's end date to IRD.
There are a few extra bits you might need to be aware of. We'll cover a straight forward termination pay and then cover off any special situations at the end of the article.
An employee's final pay must be paid on or before the pay day of the final pay period. This might be after their last day of work. There's no requirement to pay it earlier than the normal pay day unless that's what you've agreed with the employee.
You can read about final pay entitlements here: Final Pay (Employment NZ)
Check your employee's leave balances
We recommend reviewing leave balances regularly to make sure you're across what employees have available. It is particularly important to check these balances when your employee is leaving so you can be confident in the termination pay calculation.
Check the terminating employee's leave balances by going to the 'balances' tab in employee settings. Ensure all the leave has been correctly recorded as taken. You can also review leave balances reports from the reports section.
Enter an end date
Go to the Employees section.
Select your employee then choose the 'details' tab.
Select 'employment' from the menu.
Enter their last day of work as their end date.
Then save.
Pay the termination pay in your regular pay period
Select Run a Pay and view the employee's pay card. You'll notice the Include Termination Pay checkbox has appeared. Select the checkbox.
If you don't see the 'include termination pay' checkbox, check that the end date you entered in the employee settings matches up with the pay period you are currently processing. The termination pay option will only appear when the end date occurs in the date range of the pay period.
You can click the 'pay preview' icon to view a preview of the termination pay calculation. The calculations for the termination pay are visible near the bottom of the preview panel.
If you want more detail about the termination pay, you can download the Termination report from the Reports section. The report is available on screen and as a PDF or CSV download. The PDF report explains the calculations for the termination pay.
Calculate the pay and process as normal.
Pay the termination pay in a one off pay period
You may need to create a one off pay period because the employee is to be paid their final pay earlier than the regular pay period is due to be paid. Because submitting any employee pay in a pay period closes the pay period for further entry, you'll need a separate period to pay only one employee (or however many are ending employment).
Before you start creating your one off pay period, you'll need to remove the employee from the regular pay period. You can do this by clicking on the edit pencil of your normal pay period and editing the employees included in the pay period settings.
If your employee has timesheets, ensure that you make a note of the timesheet entries (take a screenshot or download the information) as once you remove the employee from the regular pay period, the timesheet data will be deleted. Click onto the timesheet view (clockface) under processing on the top left to view the timesheet and take a snip or click on the downwards arrow in the circle to download the timesheet data.
Once you have removed your employee from the regular pay period, you can create your one off pay period.
In Run a Pay, click on 'New Period' on the top right and use the same settings for the one off pay period as the regular pay period, except that you will select 'no' for the setting 'is recurring'. You can click on the edit pencil on the right of the regular period date range to view the period settings to help you create your new one off period.
Give the new pay period a group name (usually employee name/final pay – it’s easier to identify it in history once it is processed).
Entitlement to public holidays
Your employee may become entitled to be paid for public holidays that occur after their final day of work.
This only occurs when the employee has an entitled annual leave balance.
Read more about this rule on the Employment NZ website: Final pay.
Take your employee's entitled leave balance only (take the 'balance' figure and deduct the 'accrued' annual leave to find the entitled balance). Using the entitled leave balance, count forward from the employee's last day of work using their usual work pattern. For example:
Jane has an entitled leave balance of 40 hours. She works 8 hours per day, Monday to Friday, so this is equivalent to 5 days of leave.
Her final day of work is Friday 30th May.
Counting forward 5 days in Jane's usual work pattern brings us to Friday 6th June.
Tuesday 3rd June is a public holiday, so Jane is entitled to be paid for this day even though it falls after her final day of work.
In these instances, you will need to add the public holiday to the employee's final pay.
Alternative public holidays
An employee is entitled to be paid for any alternative public holidays owing at the end of employment.
For permanent employees, this will automatically be added to their termination pay calculation in PaySauce.
For casual employees who have an alternative public holiday balance, this will not automatically be added to their pay and you must add it to their pay prior to terminating.
Employees not returning from parental leave
If your employee chooses not to return to work after a period of parental leave, their last day of employment is their last day of work before they went on parental leave. Their termination pay is calculated based on their balances and earnings on that date, rather than factoring in any of the time on parental leave.
If the employee worked any 'keeping in touch' days, the earnings from these days are not included in their gross earnings when calculating their termination pay.
There is more information on this here: Final pay (Employment NZ)
You are welcome to contact PaySauce Support for help in working out any adjustment to balances or accrual in these instances.
Ending employment while on ACC
If your employee is away on ACC and then their employment ends, their end of employment is still treated as that given in their notice and not their last working day (prior to ACC). Any leave entitlements gained during a period of ACC are still owed to the employee.
Recovering negative balances
If your employee has taken more leave than they were owed in their balance, their termination pay in PaySauce will be processed as $0.00. PaySauce will not automatically recover any negative values as a deduction from the employee's pay, as deductions from employee wages require their consent. If you have had 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 will show you how the total dollar value that has been paid in advance of any entitlement.
Tax calculations at end of employment
In 2025, IRD introduced new tax calculations that specifically apply payments relating to end of employment. That includes termination pay values as well as other payments relating to end of employment, such as redundancy payments.
When you enter an employee's end date and then process a termination pay, PaySauce will automatically apply the 'end of employment' tax rules to these payments.
If you add another one off/lump sum payment to a period that includes a termination pay, PaySauce will also automatically apply the 'end of employment' tax rules to these payments, in accordance with IRD's rules.
If you want to make a payment to an employee that relates to the end of the employment but it is in a separate period prior to termination, you will need to select the 'end of employment' checkbox when adding the lump sum value.
Redundancy or other lump sum values
If you need to make a redundancy payment to an employee, this should be added using the 'lump sum' option in the pay run.
The ACC earners’ levy does not apply to redundancy payments, so you can turn the 'levy rate' to zero when you enter the lump sum payment.
We are often asked if redundancy payments should be included in leave earnings (and therefore be included in the earnings for the termination pay calculation). The law does not provide a definitive answer, but here is Employment NZ's position:
"[Employment NZ's] view is that redundancy would generally be received as compensation and not earnings. However, if an employer wants to minimise the risk of not complying with the Holidays Act 2003, they could include redundancy payments in gross earnings. We recommend they seek legal advice on this issue."
Payments in lieu of notice
If you are making a payment to an employee in lieu of notice (i.e. a lump sum payment for time that would have been worked) this is treated similarly to salary or wages - it is full and normal payment for the earnings that the employee would have received if they were working. This is also sometimes known as 'gardening leave'.
You can pay the value as a fixed amount payment or as a lump sum included in leave earnings.
All normal deductions and calculations apply to these payments: they are included in the employee's earnings for leave calculations, KiwiSaver, PAYE and all other relevant calculations.