Could Your Payroll Process Be Putting Your Business at Risk?

New Zealand employers are entering a period of significant workplace change. Updates affecting personal grievances, contractor arrangements, payroll compliance, health and safety obligations and senior employee dismissals are reshaping how organisations manage risk.

The most important message for employers is that strong processes alone are no longer enough. Businesses also need reliable systems, clear policies, accurate records and employment agreements that reflect current legislation. When these foundations are missing, even a well-intentioned decision can create unnecessary legal exposure.

Payroll practices, contractor classifications and performance management processes are particularly important. Small mistakes can quickly become expensive disputes, especially when managers, HR teams and payroll departments are not communicating effectively.

“Processes will make or break employers, but the systems behind those processes are what really matter.”

On a recent New Zealand Market Update, Team Leader Kirsty Henegan was joined by Sanam Permal, Employment Lawyer and Founder of Law Lenz, to discuss the employment law changes employers should have on their radar and the practical steps they can take to reduce risk.

One of the most significant developments is the changing personal grievance landscape. Employees earning more than $200,000 in total remuneration may face different rights relating to unjustified dismissal and disadvantage claims. However, employers should not treat the earnings threshold as a simple way to avoid proper processes. Employees may still be able to pursue claims involving discrimination, harassment or breach of contract.

The definition of total remuneration is also broader than base salary. It may include bonuses, vehicle allowances, benefits and employee share schemes. This means some employees earning below $200,000 in base salary could still fall within the threshold. Employers should identify which employees may be affected and review their agreements before making decisions based on the new rules.

Employment agreements are likely to become more heavily negotiated as senior employees become aware of the potential effect on their rights. Candidates may request longer notice periods, severance payments or additional contractual protections. Employers should decide in advance what terms they are willing to offer so that hiring decisions are not delayed during negotiations.

Contractor arrangements are another major area of risk. New gateway criteria are intended to help businesses determine whether a worker is genuinely an independent contractor. Employers need to meet every part of the test, including providing an appropriate agreement, allowing enough time for the contractor to seek advice and ensuring the arrangement reflects genuine independence.

Missing one requirement could mean the relationship is assessed using the previous legal tests, which consider factors such as control, integration and the true nature of the working relationship. Employers should therefore review contractor agreements and remove clauses that may suggest an employment relationship, such as unnecessary exclusivity requirements.

Payroll compliance is also receiving greater attention. With wage theft criminalised, employers need to ensure they are not intentionally withholding or deducting money from employees without a lawful basis. Payroll errors should be investigated and corrected quickly, with clear records showing how and why decisions were made.

Salaried employees can create hidden minimum wage risks. An employee may appear to earn comfortably above the minimum wage based on their contracted hours, but regular overtime could reduce their effective hourly rate below the legal minimum. Employers should monitor actual working patterns rather than relying only on the salary listed in the payroll system.

Wage deductions are another common problem. Payroll teams may attempt to recover overpayments, annual leave or notice period amounts without completing the necessary consultation. In many situations, the employer must discuss the deduction with the employee and obtain written agreement before proceeding. Better communication between payroll and HR can prevent these issues.

Serious misconduct policies also need to be reviewed. Employers should not assume employees will understand what behaviour is unacceptable based on common sense alone. Policies should clearly define serious misconduct and provide examples relevant to the organisation, such as fraud, harassment, data breaches or the misuse of confidential customer information.

Clear rules help employers show that an employee deliberately breached a known workplace requirement. They also support managers when deciding whether conduct has damaged trust and confidence to the point that the employment relationship cannot continue.

Health and safety reforms are also expected to create new obligations, with businesses moving through a transition period before further changes are fully enforced. Employers should monitor official guidance and review their current health and safety systems, particularly around psychosocial risks, workload, role clarity and employee wellbeing.

Although legislative changes attract the most attention, many workplace disputes begin with ordinary conversations. Performance discussions, hybrid working arrangements, mental health concerns and after-hours communication can become difficult when managers are not trained to recognise warning signs.

Employers can reduce risk by supporting managers before issues escalate. Practical training should focus on how to communicate concerns, document discussions, identify legal risks and know when to involve HR or seek professional advice.

What should employers prioritise over the next 90 days?

• Review serious misconduct policies and clearly define the behaviours that may justify disciplinary action or dismissal.

• Audit contractor agreements against the gateway criteria and remove terms that conflict with genuine independent contracting.

• Identify employees whose total remuneration may exceed $200,000 and review the relevant clauses in their employment agreements.

• Check the actual hours worked by salaried employees to ensure their effective hourly rate remains above the minimum wage.

• Review wage deduction procedures and confirm that HR and payroll teams are communicating before money is withheld.

• Train managers to document decisions, recognise workplace risk and seek support before performance or conduct matters escalate.