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Your last pay when you retire

When you leave your job because you’ve decided to retire, you’re responsible for checking that your final pay is taxed correctly. If it is not, you could get a bill from Inland Revenue at the end of the tax year.

What’s in your final pay

What you’re eligible for in your final pay and how it’s calculated depends on such things as:

  • how long you have worked for your employer
  • any annual holidays or days in lieu you have not used
  • if you do not give the required notice period
  • lump sum payments in your employment agreement (for example, long service leave, retirement package, non-taxable allowances)
  • outstanding payments due (for example, income tax, ACC levies, student loan, child support).

Unused sick leave or bereavement leave does not legally have to be paid out, but some employers may include it in a final payment.

Hours worked

Your final pay includes all the hours you have worked since your last pay until you leave your job.

If you get your final pay before your last day at work, you need to check you’re paid up until your finishing time on your final day.

Public holidays, annual holidays and alternative holidays

How much you will be paid for public holidays, annual holidays or alternative holidays (days in lieu) depends on:

  • how long you have been in the job (for example, less than or at least for 12 months)
  • if any public holidays fall during that time, you’ll be paid for those too.

Payment for leave and holidays in final pay

Notice periods

When you give notice, tell your employer in writing that you are leaving. Check your employment agreement for how much notice you must give your employer.

It helps to put any agreement on your finish date or conditions in writing.

Giving notice

If you do not give the required notice period, it can affect your final pay.

Notice component of final pay

Lump sum payments

Any other payments — also called extra pay — will be:

  • written in your employment agreement, or
  • negotiated as part of your retirement package.

Examples of lump sum payments are long service leave or non-taxable allowances.

Lump sum payments

What’s taken out of your final pay

Your employer takes tax and other payments off the total amount you’re paid. It’s your responsibility to make sure they have taken the right amounts.

Income tax

You pay tax on the entire amount of your final pay.

Your tax rate might change if you are being paid a lump sum. Make sure that you pay the correct tax by using the IR calculator.

IR tax on annual income calculator

If you do not work a full year you may be eligible for a tax refund at the end of the year.

IR fact sheet on retirement allowances and taxes (PDF 111KB)

If your family income goes down, you may be able to apply for a Working to Families Tax Credit.

Working for Families

ACC levy

You pay the ACC levy on:

  • wages
  • annual leave payments.

If your employer is paying you a lump sum bonus as part of your retirement package there is no ACC levy on it.

KiwiSaver

Your KiwiSaver contributions, if you’re still making them, are taken out of your:

  • wages
  • annual leave payments.

KiwiSaver contributions are not taken out of lump sum retirement payments.

If you’re 65 you can withdraw your KiwiSaver savings as a lump sum, but you do not have to.

KiwiSaver withdrawals after you turn 65

Example

You contribute 3% of your income to KiwiSaver and you receive a final pay of:

  • $1000 wages
  • $200 of unused annual leave
  • $2500 lump sum retirement payment.

You pay $36 in KiwiSaver contributions — that is, 3% of $1200 ($1000 + $200).

Student loan repayments

If you’re repaying a student loan, the usual 12% repayment is taken from the total of your final pay, before any other deductions or taxes are taken out.

Example

You receive a final pay of:

  • $1000 wages
  • $200 of unused annual leave
  • $2500 lump sum retirement payment.

You pay $444 towards your student loan — that is, 12% of $3700 ($1000 + $200 + $2500).

Child support

If you pay child support, the usual amount you pay is taken out of your:

  • wages
  • annual leave payments.

You do not pay child support from lump sum retirement payments — but they might change what you have to pay in the future.

Contact IR if your circumstances change.

Child support: tell IR when your circumstances change

Unsure about your final pay

If you do not think that your final pay is correct, talk to your employer first.

Talking to your employer

If you cannot resolve the problem, you can contact:

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