Author: David Jenkins, NZPPA CEO

I guess I am lucky (or a glutton for punishment) because I get all the weird and wonderful payroll questions coming through to the NZPPA.  So, this article will have a common theme about when an employee moves within a business or from business to business and some of the associated activities you may come across.

Now, I will discuss some areas that can be seen as reimbursements to the employee.  I have always stated that reimbursements belong outside of payroll, but that does depend on the makeup of your business and, in some cases, the multiple roles that payroll practitioners have within the business (not just paying payroll).  The reason why I mention reimbursement is if the rules to make a payment truly a reimbursement are not followed, then it could make the payment taxable, and then it comes back to payroll.  They have been included for payroll to be aware of – keep them on your radar.

As always, I am writing for payroll and in plain language.  There are usually numerous options, so I am writing on some of the most common ones seen in payroll.

In this article, the following situations involving the employee moving (in some way) will be covered:

• Within the business
• From one business to another when the business has been sold
• From country to country
• Relocation (within the business but in a different location)
• Employee leaves (resigns) and then comes back
• Travel allowances (taxable and reimbursement)

Within the business

Employees get promoted, employees move sideways or ask for flexible hours for their own personal reasons (work-life balance, family etc.).  Moving within a business still means you are working for the same employer, but it may mean a variation of the employee’s employment agreement on the changes.  I often see issues in payroll when the employee has changed conditions, but nothing in payroll has been updated as payroll was never informed (always the last to know).  Over time this can undermine leave, creating under and overpayments and trust in the business from the employee’s perspective.

So, for payroll, it is essential to find out if the change has impacted the employee’s terms and conditions, such as:

• Changes in agreed payments (base hourly rate, salary, allowances, bonus, commission and incentives)
• Changes to the employee’s week, work pattern, shifts etc., so a new leave profile may need to be created
• Converting leave entitlement earned before the new agreed week if the week has changed

From one business to another when the business has been sold

I often get this question, especially about transferring entitlement from one employer to another when the business has been sold.  Now, if an employee moves from one business entity to another, they become an employee of the new entity (their new employer).  This means they get a new employment agreement as it is a new employment relationship.  For payroll, that means a termination pay with their existing employer (to ensure minimum entitlements have been paid).

Presently, nothing in the legislation allows the movement of entitlement, such as leave, to be transferred from one employer to another (separate entities) when a business has been sold.  This is actually one of the areas that the new Holidays Act is to cover (Recommendation 18 from the Holidays Act Review).  On the sale of a business, an employee could choose to transfer or have any leave paid out, but we will need to wait and see if we ever get a new Holidays Act.

From country to country

This is another question I get a lot: “We have an employee moving from our New Zealand business to Australia.  Can they bring their leave entitlements across to their new role in Australia?”  Firstly, New Zealand is not a state of Australia, and it may be a shock to many, but we have different laws as we are different sovereign countries (just watch any New Zealand vs Australia sporting event to confirm that).  No employment legislation links us to Australian legislation, so leave cannot be transported in your carry-on luggage across the ditch!

So, for payroll, any minimum entitlement leave, such as annual holiday entitlement and accrual (8%), must be paid out in a termination pay when the employee finishes their employment with the New Zealand company.  If the employee was provided with additional leave on top of a minimum entitlement, this is where by agreement, the employee could have this transferred to the Australian company they are moving to because it is outside the scope of the Holidays Act.

Relocation (within the business but in a different location)

This is where the employee stays in the business but moves to another location.  What can happen is that in the agreement to move, the employer offers to cover part or all of the moving costs (because they want the employee in the new location).  This is an agreed term, not a legislative requirement.  If the employer has agreed to pay, then this would not be a taxable payment subject to PAYE for the employee, but if not treated correctly, the payment could be taxable for PAYE.

Here are three different examples (expense, reimbursement and taxable PAYE) just to show the different ways this could be seen:

1. The employee gets some quotes for the move, and the business decides on which one and pays the invoice through accounts (expense).
2. The employee gets some quotes and approval for the cost from the business, and the employee pays for the move and gets reimbursed by the business (reimbursement).
3. The employer gives the employee a sum of money to use to get to the new location and requires no quote or receipt for the money paid (taxable PAYE).

Number 3 is the issue and is the one that payroll needs to watch out for and ensure tax (PAYE) is paid because it is a taxable benefit.

Just one other thing here if the business is willing to pay for the move, do think about bonding the employee.  For example, if the business agrees to pay $10,000 for the move, the employee agrees to stay for a period of 12 months.  If they want to leave before the 12-month term, they agree to pay pro rata the value paid for the move back to the business (but if done through payroll, the Wages Protection Act 1983 applies).

Employee leaves (resigns) and then comes back

This is another type of movement when an employee decides to resign (they have decided, not the employer), leaves (payroll processes their termination pay), and then asks to come back a short time later.  The question from payroll is how this impacts the employee’s leave (Holidays Act) because of continuous employment and the employee only leaving and coming back in a short period.  Well, the short answer is that it does not impact the employee’s leave because their leave was paid out on termination when the employment relationship ended based on their decision to resign.

Just because the employee comes back after resigning, there is no link between their past and the new employment that has now started.  Payroll does not need to reset leave as continuous employment from the termination date to their return.

I did have a question recently when a business was thinking about reinstating leave entitlement for an employee coming back after resigning within a short period.  This is just CRAZY.  The employee was happy to get their leave entitlement back but was not interested in repaying the leave that had been paid out on termination.  It also would have to be seen as an agreed term, as there is no option to do this under the Holidays Act.  Also, think about payday filing etc.  There is only one option based on a termination where leave is treated as continuous employment under the Holidays Act, and that is when the employer dismisses and rehires an employee within a month (section 85).  This is not about the employee choosing to resign.

Travel allowances (taxable and reimbursement)

Now to start with, all travel allowances are by agreement.  There is no legislative requirement that states an employee must be paid some form of travel allowance.  This may change with the development of Fair Pay Agreements because if a travel allowance is included in a fair pay agreement that was agreed (goes through a bit of process), then it becomes law.

So, for payroll, if the transport allowance reimburses the employee for travel-related expenses, then all good. As long as it was for an expense the employee incurred while working for their employer, then it won’t need to go through payroll as there is no taxable PAYE component involved.  The most common is the reimbursement for using the employee’s car that IRD publishes.  But do keep in mind that the rates published by IRD should be seen as a threshold, and the rate does not need to be used as what the employee is paid for using their car per km is an agreed term.  However, if you agree to pay over the published IRD rate, anything above the rate becomes taxable for PAYE.

For a clearly defined taxable motor vehicle allowance, this would be processed in payroll as it is part of the taxable gross for the employee.  What is paid is a matter of agreement and usually is a flat rate.  The key is to keep it simple in how it is claimed, approved, and, in payroll, processed.

So, in conclusion, employee movement is another part of the employee lifecycle.  For payroll, understanding how an employee can move and the impact of that move on payroll is essential.

NZPPA supporting NZ payroll since 2007!