What Severance Pay Rules Must Employers Follow in New Zealand?

Which Employees Qualify for Severance Pay?

• Employees whose individual employment agreements or collective agreements expressly provide for redundancy compensation or severance.
• Employees being made redundant through a genuine business restructuring carried out in good faith and following fair process.
• Employees who have completed any minimum service period for redundancy pay that is specified in their employment agreements.
• Employees covered by a company-wide redundancy or severance policy that is clearly incorporated into their employment terms.
• Employees who are not dismissed for misconduct or poor performance, but whose roles are disestablished or significantly changed.
• Employees whose negotiated exit packages on termination include an agreed ex gratia severance component.

What Are the Legal Timelines for Paying Severance?

In New Zealand, there is no single statutory deadline for severance, but best practice is to pay any contractual redundancy compensation in the same pay cycle as final pay. Final pay must include all outstanding wages, holiday pay, and other contractual entitlements, and is usually processed on the last working day or the next regular payday. Where a settlement agreement sets out severance terms, you should follow the specific payment dates recorded in that agreement. To avoid disputes, confirm the severance amount, tax treatment, and payment date in writing before the employee’s last day. Many employers also align severance payment with the end of the notice period so the employee receives everything at once.

What Penalties Apply if Severance Is Not Paid Correctly?

If your company fails to pay agreed severance or mishandles redundancy, you risk personal grievances, penalties, and reputational damage under the Employment Relations Act 2000. The Employment Relations Authority and Employment Court can enforce contractual redundancy clauses, order compensation, and impose fines where you have not acted in good faith or have breached employment agreements.

• The Employment Relations Authority can order you to pay unpaid redundancy compensation plus interest.
• Employees may be awarded compensation for humiliation, loss of dignity, and injury to feelings.
• Civil penalties can be imposed for breaches of employment standards or good faith obligations.
• You may be required to reinstate an employee if the dismissal process was unjustified.
• Legal costs, management time, and brand damage can significantly exceed the original severance amount.

Does Outsourcing Employment via an EOR Change Severance Liability?

Using an Employer of Record (EOR) such as https://www.playroll.com/employer-of-record does not remove the need to follow New Zealand redundancy and termination rules. In an EOR model, the EOR is the legal employer and is responsible for drafting compliant employment agreements, administering notice, and paying any contractual redundancy compensation. However, your company still directs day-to-day work and must act in good faith when initiating restructures or role changes that may lead to redundancy. You will typically fund the severance cost through your commercial agreement with the EOR, so poor planning can still create unexpected liabilities. Clear communication with the EOR about restructuring timelines and budgets is essential to avoid non-compliance.

Be 100 Percent Compliant in Offering Severance with Playroll

Playroll helps your company stay aligned with New Zealand’s employment framework by standardising contracts, documenting redundancy terms clearly, and ensuring final pay calculations are accurate. Your team gets visibility over notice, holiday pay, and any agreed redundancy compensation so there are no surprises at the end of employment. With local expertise built in, you reduce the risk of overlooking good faith consultation duties or misclassifying a payment.

When you hire through Playroll’s global platform, severance and redundancy obligations are mapped into each employee’s agreement from day one. If you need to restructure, Playroll coordinates with you on timelines, documentation, and payment processing so employees are exited fairly and on time. That way, you protect your brand, avoid costly disputes, and keep your New Zealand workforce changes compliant and predictable.