Getting ready for 1 April

Everything you need to know about the 1 April tax and employment updates.

Sitting at that lovely intersection of tax and employment related changes, the start of the financial year always brings a flurry of activity to the world of payroll. To help, we’ve collected a few things that we think you should be across, including several that we’ll handle automatically for you in PaySauce.

Just a reminder, if you have any automatic bank payments (APs) set up to pay employees their net pays, you may need to update these to account for the changes in the tax calculations. If you’re still handling employee net payments yourself, why not get PaySauce to do the banking directly to your employees for you? That way you don’t have to muck about whenever changes happen and there’s one less thing to do each pay time! If you want to find out how, get in touch with our Support Team.

Changes to tax rates

1. Tax on extra pays

Last year there was an unusual change to tax thresholds outside the normal financial year timetable. Our blog in July 2024 covered these in detail and you can refresh yourself here: July 2024 Tax Changes.

At the time, the tax thresholds moved for normal PAYE earnings (salary/wages) but not for "extra pays" (also known as lump sum payments). The "extra pay" changes will take effect on 1 April 2025. From that date the new tax thresholds will apply whenever you make any payments that use the lump sum tax method. There are some further changes to lump sum tax methods at the end of employment which we cover below.

2. ACC Earners' Levy

PAYE calculations also include the ACC Earners’ Levy. You can read more about ACC levies here: Understanding levies if you work or own a business.

The ACC Earners’ Levy will increase from 1.60% to 1.67% as of 1 April 2025. This means all employees will see a small increase in the amount of tax deducted from their pay, and therefore a small decrease in the net amount they receive after tax.

• For a person earning $1000 per week, the levy will increase from $16 to $16.70.
• For a person earning $1500 per week, the levy will increase from $24 to $25.05.

The ACC Earners’ Levy does not apply to earnings over a threshold, and that threshold is increasing to $152,790. That means the maximum levy someone could pay in the 2025/26 year is $2,551.59.

3. Student loan deductions

If you or your employee is making student loan repayments, then you can expect to see a slight decrease in these payments from 1 April (assuming the same amount before tax).

When you’re making student loan repayments from your primary/main income (usually using the tax code M SL), the repayment amount is calculated as 12% of your earnings in that pay period over a repayment threshold.

Here’s a really basic example of how student loan repayment thresholds work:

1. Weekly gross pay: $1000
2. Weekly student loan repayment threshold: $464
3. Gross pay minus repayment threshold: $536 (this is the amount of earnings over the repayment threshold)
4. 12% of earnings over repayment threshold: $64.32

The repayment threshold usually increases slightly at the start of each financial year, so for the same gross amount we’re using a smaller amount to calculate the 12% student loan repayment.

We don’t yet have confirmation of the new student loan repayment threshold for the 2025/26 year, but when we do, we’ll update it here.

4. ESCT thresholds

ESCT stands for Employer Superannuation Contribution Tax. Typically you’ll see this as the tax that is applied to the employer contribution for KiwiSaver. These thresholds are increasing from 1 April. Nothing you need to do here - this is only really noticeable if you look at how the employer contribution is split between this tax and the net value the employee receives to their KiwiSaver.

Current ESCT rate thresholds	New ESCT rate thresholds	Applicable rate
$1 - $16,800	$0 - $18,720	10.5%
$16,801 - $57,600	$18,721 - $64,200	17.5%
$57,601 - $84,000	$64,201 - $93,720	30%
$84,001 - $216,000	$93,721 – $216,000	33%
$216,001+	$216,001+	39%

End of employment payments

For the payroll nerds among us, there is quite a significant change to the method used to apply lump sum tax rates.

The IRD has specified a new method for calculating the thresholds used to determine the tax rate used for lump sum payments when they relate to the end of employment. These specifications are currently in draft, so we may still see further changes - but here’s a summary of the changes as we’ve currently been advised.

Last year we wrote about the method used for taxing lump sum payments (or extra pays) in our blog Tax Rates, bills and refunds.

In short, when we make a lump sum payment, we look back over four weeks from the date you’re making the payment. We take the relevant earnings in that period then "annualise it": multiplying that four week total by 13 to project out assumed annual earnings. Once we take that annualised amount + the value of the lump sum, we can see which tax threshold that total falls into. We then apply that relevant tax rate to the total of the lump sum payment.

The new method at the end of employment uses the two prior paid periods and then using that total, we annualise using an appropriate multiplier depending on if the pay periods are weekly, fortnightly, monthly or four-weekly.

We reckon there’s some good in this by ironing out kinks around the existing four week method. For example, using only paid periods does eliminate the problem of when an employee may not have been paid in the four week date range, meaning the effective rate selected would be the lowest rate (10.5%). That was right using IRD’s specifications, but usually not "right" for the employee.

However, there’s also some complexity being introduced we’ll need to watch out for. "End of employment" means this applies to termination pays but also other payments specifically relating to employment coming to an end: redundancy payments, for example, or retiring allowances. While this would usually be very clear cut, we are expecting that many employers will be looking for guidance on what is genuinely classified as "relating to end of employment". Other lump sum payments paid at the end of employment will also need to use this new method.

Note: employees can elect to use higher tax rates than the one they may be prescribed by using the IRD method. They just can’t choose a lower one (yes, we get asked this all the time!)

The existing method (annualising the prior four weeks) has not changed, and will still be used for lump sum payments outside the specific end of employment situation.

While the IRD specifications are currently released as drafts only, they do contain instructions on managing a number of different scenarios relating to this new method. Once the changes have taken effect on 1 April, our Support team will be available to help you with any specific questions you have.

Minimum wage increase

The adult minimum wage will rise from $23.15 to $23.50 per hour, and the starting-out and training minimum wage will increase from $18.52 to $18.80 per hour.

We know that some folks still get tripped up with the rules around minimum wage and starting out/training wages, so here’s a quick summary for you. And remember, PaySauce can help manage your minimum wage obligations with our handy Top Up feature!

If an employee is aged 16 or over, the employee must be paid at least the minimum wage. There are 3 types of minimum wage:

• adult
• starting-out
• training

An employee's age and work situation determine their minimum wage. Employees aged 16 and over must be paid at least the adult minimum wage, unless they’re starting out or a trainee. Employees under 20 may be entitled to the starting-out wage, depending on their circumstances. Employees aged 20 or over, completing 60 credits of industry training, must be paid at least the training wage.

You can read all about the details of each rate type here: Minimum wage rates and types.

We've got your back

Navigating the ever-changing landscape of rules and regulations in business can be overwhelming. Staying compliant and up-to-date with the latest changes in tax thresholds, methods, and other legal requirements demands constant attention and can easily distract you from focusing on core business operations.

Don't worry, we're here to help! Our team stays ahead of all the regulatory changes, ensuring that your payroll stays accurate. This allows you to focus on what truly matters - growing your business and achieving your goals - with the peace of mind that your payroll is in safe hands.

Disclaimer: The information provided in this post is for general informational and educational purposes only. It is not intended as, and should not be construed as, professional tax or financial advice.