Payroll errors: putting an underpayment or overpayment right with your staff

Underpayments: pay the arrears, and show how you worked them out

Section 4 of the Wages Protection Act 1983 says that when wages become payable, you must pay the entire amount. Wages paid short are arrears, and the employee can recover them in the Employment Relations Authority under section 131 of the Employment Relations Act 2000, even if they accepted the lower pay at the time. The limit for that claim is 6 years from when the money was due (section 142). An hour paid below the minimum wage, $23.95 for adults from 1 April 2026, is also a breach of section 6 of the Minimum Wage Act 1983.

No law fixes the day you must pay arrears, but there is no reason to wait: pay them with the next pay, or sooner if the amount matters to the person. The Labour Inspectorate's guidance on fixing holiday pay errors expects arrears to be paid whatever the amount, including to people who have left, and the same thinking suits any pay error.

Employment New Zealand says you do not have to give a payslip unless the employment agreement promises one, but section 130 requires your wages and time record to show the hours worked each day, the pay for them, and the wages paid each pay period with the method of calculation. So put the arrears on their own line, with the period they relate to and how you worked them out. This made-up example is arithmetic: a worker on $28.00 an hour was paid for 68 hours in a fortnight when their timesheet showed 76. The arrears are 8 hours at $28.00, which is $224.00 before tax.

Overpayments: written consent before anything comes back

Recovering an overpayment by taking it from later wages is a deduction, and section 5 of the Wages Protection Act allows a deduction only with the worker's written consent, or at their written request, for a lawful purpose. Employment New Zealand puts it plainly for one-off errors, such as a wrong figure keyed into payroll or a system fault: you must not deduct the overpayment automatically, and you need the employee's written consent first. That applies to final pay too.

Section 6 is the narrow exception, and most payroll mistakes are outside it. It lets you recover without consent only for a period when the employee was absent without your authority, on strike, locked out or suspended, where your pay system made the overpayment impracticable to avoid. Even then you must give notice, usually by the next pay day, and recover the money within 2 months of the notice. A rate keyed wrongly for a month does not fit.

When you ask for consent, keep it fair:

• Explain the error with the dates, the amounts and how it happened, and say it was your mistake if it was.
• Agree an amount per pay that the person can manage. A deduction must not be unreasonable (section 5A), and a general deductions clause in the agreement still needs a conversation before each specific deduction (section 5(1A)).
• Get the consent in writing, for this overpayment, with the instalments set out. The employee can withdraw consent in writing, and you then stop or vary the deductions within 2 weeks if practicable (section 5(2)).

If the employee says no, you cannot deduct. Talk again, offer smaller instalments or a longer period, and if that fails, Employment New Zealand says you may consider recovering the money through mediation, which is also its suggestion when the person has already left. A deduction made without consent can be recovered by the employee or a Labour Inspector for 6 years (section 11), and it exposes you to a penalty (section 13). Our article on whether an employer can deduct from pay covers the same rules from the employee's side.

Correcting PAYE, KiwiSaver and student loan through payday filing

The Tax Administration (Correction of Errors in Employment Income Information) Regulations 2019 set how each error is fixed, as soon as reasonably practicable (regulation 9):

• Arrears you now pay. Inland Revenue lists back pay as a lump sum payment, also called an extra pay, so you deduct PAYE on it at the extra pay rates and report it in the payday filing for the period you pay it. KiwiSaver deductions come off it as gross pay, and Inland Revenue says backdated pay may also mean paying compulsory employer contributions, at least 3.5%, where deductions are taken from it.
• An overpayment repaid through later pays. If the employee agrees in writing and you reduce the gross pay of later pays by the agreed amount, those paydays are filed as normal and no other correction is needed (regulation 4(8)). PAYE is worked on the lower gross, so take-home pay falls by less than each instalment.
• An overpayment repaid in a lump. Correct the original payday's employment information in myIR, or net the overpayment and its deductions off in a later payday's filing, as long as that does not leave a negative figure (regulation 4(2) and (7)).
• A wrong KiwiSaver or student loan rate. These are corrected by amending the original payday's information, not by netting off later (regulation 7).

You have 4 years from the date you first filed a payday's employment information to amend it, after which the assessment is final. The Inland Revenue employer's guide, IR335, explains the prior period adjustment fields used for these corrections.

A plain letter for each case

Tell the person in writing, before or with the pay that fixes it. Two made-up examples:

Finding the cause: the hours record against the pay

A fix that does not find the cause comes back next pay. Most errors trace to hours keyed by hand, a timesheet changed after payroll ran, a pay rise entered with the wrong start date, overtime or public holiday hours coded as ordinary, or one entry counted twice. For each affected pay period, line up the hours record, the pay calculation and what was paid.

That comparison works only if the hours record shows what changed and when. Our article on approving and correcting timesheets sets out how to keep the original beside each correction, and the one on getting timesheets into payroll covers the cut-off and the check before each pay run that stop most of these errors.

Team timesheets from jobtracker.co.nz gives you that record for the people who choose to share their hours with you: any entry changed after a week was marked sent shows the earlier figures and when it changed, and with optional approvals turned on, the CSV ready for your payroll shows whether each entry was approved, by whom and when. Nobody approves their own time. It does not calculate pay, run payroll or read the pay or rates in anyone's own account. It costs $6.99 a seat a month, GST included, for at least three seats.

The hours behind every pay, on one record