Payroll Error Correction Calculator NZ 2026

This calculator works out what it actually costs to put a payroll underpayment right, which is reliably more than the shortfall itself. You enter the amount underpaid each pay period, how many periods it ran for, how many employees were affected, and your employer KiwiSaver and ACC rates, and it returns the arrears, the on-costs that should have ridden on that pay, the holiday pay flow-on, and the total. Three things make a small error expensive. Employer KiwiSaver and the ACC work levy apply to the arrears, because back pay is still gross earnings and carries everything ordinary pay carries. Holiday pay is the one most corrections forget: average weekly earnings is gross earnings over the last twelve months divided by fifty-two, so if gross earnings were understated then every annual holiday paid during that window was calculated on a number that was too low, and fixing only the wages leaves a second, smaller underpayment sitting behind it. And errors are rarely confined to one person, because payroll mistakes are usually configuration rather than typing, so the same rule misfires across everyone it touches. On tax, arrears are taxed in the period they are paid rather than the period they relate to, so PAYE comes out of the pay run that includes them. Recovering an overpayment is a different and much narrower matter: deductions generally need written consent, so ask rather than deduct.

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$19,928
total cost of putting this right
Arrears owed$16,380
Holiday pay flow-on$1,310
Employer on-costs$738
Per employee$1,423

Arrears are taxed in the period they are paid, not the period they relate to. The holiday pay flow-on is there because understated gross earnings understate average weekly earnings, so annual holidays taken during the affected window were also calculated on a figure that was too low.

How it works

Arrears are the amount underpaid each period multiplied by the number of periods and the number of employees affected. The holiday pay flow-on applies your percentage to those arrears, which approximates the effect of understated gross earnings on average weekly earnings and therefore on any annual holidays paid during the affected window. Employer KiwiSaver and the ACC work levy are then applied to the arrears and the holiday flow-on together, because both are gross earnings. The admin cost of running the correction is added once, since the work of identifying who is affected, recalculating and communicating it does not scale with the size of the individual shortfall. The per employee figure divides the whole total by the number of people affected, which is usually the number that gets quoted back to you in a meeting.

Worked example

A payroll rule was set up wrongly and underpaid 14 people by $45 a fortnight for a year, which is 26 pay periods. The arrears are $45 times 26 times 14, or $16,380. Because those understated earnings also fed average weekly earnings, the holiday pay flow-on at 8 percent adds about $1,310. Employer KiwiSaver at 3.5 percent and an ACC work levy of 0.67 percent apply to the whole $17,690, adding about $738. Add $1,500 for the work of finding, fixing and explaining it, and correcting a $45 error costs roughly $19,928, or about $1,423 for each person affected.

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Data sources: the rules on this page are maintained against Employment New Zealand and Inland Revenue. Not legal or payroll advice. Figures are checked twice monthly.

Frequently asked questions

Can an employer just fix an underpayment in the next pay run?

Usually yes, and it is normally the right thing to do. Arrears are taxed in the pay period they are paid, not the period they relate to, so the PAYE is worked out on the pay that includes them. What matters is that the correction carries everything that should have ridden on the original pay: employer KiwiSaver, the ACC work levy, and holiday pay if the shortfall changes gross earnings used in leave calculations.

Does an underpayment affect holiday pay as well?

Often, and it is the part most corrections forget. Average weekly earnings is gross earnings over the last 12 months divided by 52, so if gross earnings were understated then every annual holiday paid in that period was calculated on a number that was too low. Correcting only the wages leaves a second, smaller underpayment behind in the leave that was already taken.

Can an employer recover an overpayment?

Only in narrow circumstances. Deductions from wages generally need the employee's written consent, and the Wages Protection Act allows recovery of an overpayment without consent only where the employee was unavailable to work and specific notice conditions were met. In practice most overpayment recovery is by agreement, so ask rather than deduct.