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Back pay. Your obligations as a NZ employer

Published April 8, 2024 (last updated on May 15, 2024) | Adam Wyatt - Copywriter and Content Creator

Two people at a desk with laptops calculating back pay

In New Zealand, employees have the right to be paid correctly and fairly for their work. Back pay refers to a payment made by an employer to an employee to compensate them for wages they were not initially paid, often due to an error in calculating their pay. This article provides a comprehensive overview of how back pay works in New Zealand, including its meaning, common reasons for its occurrence and the rights of employees and responsibilities of employers. 

What is back pay? 

Back pay is compensation paid to employees for wages they earned but did not receive. This can happen for various reasons, like errors in calculating wages, overtime, or holiday pay.  

Why do employees get back pay? 

There are several reasons an employee might receive back pay. Here are some common scenarios: 

Miscalculations in pay 

Errors in calculating minimum wage, overtime pay, holiday pay, allowances or deductions can lead to underpayment. 

Changes in employment agreements 

If an employee's role or responsibilities change, their pay rate may need to be adjusted retroactively. 

Administrative errors 

Payroll mistakes, such as missing timesheets or incorrect leave calculations, can result in underpayment. 

Minimum wage increases 

If an employee was not paid the minimum wage for the hours they worked, back pay may be necessary to account for the difference. 

Do employers have to make back payments? 

Under New Zealand employment law, employers are legally obligated to back pay employees who have been underpaid. This includes any unpaid wages, overtime pay, on-call pay, holiday pay or allowances.  

Here are some federal law and contract-based principles protecting an employee’s right to back pay in New Zealand: 

How can I avoid underpayment? 

Both employers and employees can take steps to prevent underpayment and the need for back pay. 

Employers 

Employers should ensure they are familiar with New Zealand employment law and minimum wage regulations. Here are some ways in which employers can ensure they’re compliant: 

  • Review wages regularly: Check employee wages against agreements, awards (if applicable) and the minimum wage for your industry sector.  

  • Stay updated: Be aware of annual minimum wage adjustments (typically July 1st) and relevant award changes. 

  • Correct classification: Ensure all workers are under the correct award and classification level for their job duties. 

  • Promotions and qualifications: Review pay as employees gain experience, train, or get promoted. 

  • Junior/Apprentice rates: These can increase due to age, service time or competency. 

  • Keep accurate records: Maintain timesheets, pay records and employment agreements for verification. 

Employees 

Employees should keep copies of their employment agreement, payslips, and timesheets. Regularly reviewing payslips to ensure accurate pay calculations is crucial. If discrepancies are found, employees should raise concerns with their employer directly. 

How do I calculate back pay? 

The method for calculating back pay depends on the reason for the underpayment. Here are some common examples of back pay scenarios: 

  • Minimum wage underpayment: Calculate the difference between the minimum wage and the amount already paid for the hours worked. 

  • Unpaid overtime: Identify the number of unpaid overtime hours worked and calculate the overtime pay rate based on the employee's normal hourly wages. Multiply these figures to determine the additional pay owed. 

  • Holiday pay underpayment: Determine the specific type of holiday pay underpaid (e.g., annual leave, sick leave) and calculate the amount owed based on the employee's average daily pay or relevant legislative provisions. 

Pay slips and record-keeping 

While not mandatory in New Zealand (unless stipulated in an employment agreement), pay slips can be useful in investigating back pay claims. 

Employers are legally required to maintain accurate records of wages; time worked and leave entitlements. These documents detail gross pay, deductions, and net pay. Providing a record of how an employee’s wages were calculated. 

You can ask your employer for a breakdown of your payment details or a pay slip, if you suspect you were underpaid. 

Frequently Asked Questions

Can I claim back pay for overtime hours worked?

In New Zealand, your employment agreement typically outlines your standard work hours. Overtime pay depends on your agreement:

  • Overtime clause: The agreement may specify how overtime is compensated, either through a higher hourly rate (at least minimum wage) or factored into your salary.
  • No overtime clause: If overtime isn't addressed in the agreement, employers and employees should keep accurate records of additional hours worked.

Discuss it with your employer first if you believe you're entitled to unpaid financial compensation. 

What are the legal requirements for employers regarding back pay?

New Zealand employment law and the employee's employment agreement typically outline the legal requirements for employers regarding back pay.

Here are some key points:

  • Obligation to pay: In most cases, employers are legally obligated to make back payments to employees who have been underpaid. This includes any unpaid wages, overtime pay, holiday pay or allowances.
  • Record keeping: Employers must maintain accurate employment records, including timesheets, pay records and any communication related to pay adjustments. 
  • Timeliness: Retroactive pay should be paid in a lump sum to the employee promptly once the underpayment is identified or a claim is established.
Is there a time limit for claiming back pay in NZ?

There is no specific statutory time limit for claiming back pay in New Zealand.  However, delays in claiming can make it more difficult to gather evidence and pursue a successful claim.

Here are some considerations:

  • Employment agreements: Some employment agreements may specify a time limit for bringing claims against the employer, including claims for back pay.
  • Evidence: The longer you wait to claim, the more difficult it may be to gather evidence to support your claim. Timesheets and payslips become harder to access over time.
  • Resolution process: There are various avenues for resolving employment disputes, including mediation through the Ministry of Business, Innovation and Employment (MBIE) or taking legal action through the Employment Relations Authority (ERA). Time limits may apply depending on the chosen resolution process.

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