Payroll 101: what it is, why it matters, and how to get it right from day one

What is payroll, really?

Payroll isn’t just about paying your staff. It’s about paying them correctly, on time, and making sure you don’t accidentally break any laws in the process. The best way you can get it right from Day One is to understand your options, work with a trusted payroll expert, and double-check your set-up. 

Think of it like maintaining your car. If you forget to service it, ignore warning lights, or put in the wrong fuel, you could be in for major repairs — or worse, a breakdown at the worst possible time. Payroll is the same. Get it right, and everything runs smoothly. Get it wrong, and it can cost you time, money, and trust from your employees.

Why do I need payroll?

Short answer: because you’re legally required to. Longer answer: because your employees like getting paid , and payroll makes sure they’re paid correctly, with all the right deductions handled.

Payroll isn’t just about salaries either. It ensures:

• You’re calculating leave properly
• KiwiSaver contributions are sorted
• Tax obligations are handled automatically
• You’re not facing fines for mistakes

Do I need payroll only if I have full-time and part-time employees? Or do I need it if I work with contractors, too?

In New Zealand, payroll is required for employees (full-time, part-time, and casual) because employers are responsible for deducting and paying PAYE tax, ACC levies, KiwiSaver, and other entitlements.

However, for contractors, it's different. Since they are responsible for their own taxes, ACC, and KiwiSaver, businesses don’t necessarily need payroll software to pay them. Instead, contractors invoice for their work, and businesses pay them directly. That said, some businesses still use payroll systems to streamline contractor payments — especially if they’re working with a mix of employees and contractors. Some payroll systems also help track payments for compliance and reporting purposes.

So, in short: If you’re only hiring contractors, you don’t need payroll software, but it can still be useful for managing payments efficiently. If you have employees and contractors, payroll software makes the process much smoother. 

If the contract doesn't require you to take withholding tax then there may not be any value in putting those transactions through the payroll system. It depends on the contract.

What happens if I get payroll wrong?

One missed payday might not seem like a big deal, but trust us — employees remember. Late or incorrect payments can lead to frustration, low morale, and even legal trouble. Then there’s the IRD, who are not known for being easy going about unpaid taxes.

Common payroll mistakes include:

• Miscalculating PAYE or KiwiSaver deductions
• Forgetting to pay taxes on time
• Not keeping accurate records
• Failing to include leave entitlements properly

Mess up enough, and you could face penalties or back payments, which can be a serious headache (and expensive).

DIY payroll vs. using an intermediary

While you can manage payroll yourself, it requires time, accuracy, and staying on top of compliance rules. If that sounds like too much admin, a PAYE intermediary, who handles everything — payments, tax filings, deductions — so you can focus on growing your business instead of complex calculations.

Final thoughts

Payroll might not be the most exciting part of running a business, but it’s one of the most important. Get it right from the start, and you’ll avoid stress, keep your team happy, and stay on the right side of the law.

Want to make payroll effortless? Look into a PAYE intermediary — your future self will thank you.

Article by Byron Oosthuizen, Marketing Specialist at ThankYou Payroll.