Dismissing a High-Income Employee in NZ: What the $200,000 Rule Changes

Ending the employment of a senior or highly paid employee can feel straightforward if their package is around $200,000, but this reform does not create a simple salary cut-off. Employers still need to work out whether the employee actually falls within the statutory threshold, whether transitional protection still applies, and whether a specific written employment term opts the employee back into the ordinary dismissal protections.

In practice, that means checking more than base pay. Bonuses, allowances, overtime, some leave payments and share scheme benefits can matter, while other amounts do not. Timing matters too, because employees in the same role before 21 February 2026, or moved by restructure, may still keep dismissal grievance rights during the transition unless the parties agreed in writing, as a term of employment, to bring the change forward.

This guide focuses on the high-income dismissal rule in New Zealand, including how annual remuneration is calculated, what protections are removed, what claims can still be brought, and why notice, severance and contract wording still need separate attention.

Start with these four checks before you move

1. When will the employee be notified of dismissal? Timing matters because, according to Employment New Zealand's high-income dismissal guidance, the relevant law change commenced on 21 February 2026, and there is a 12-month transition for some employees.
2. What position are they being dismissed from? The annual remuneration test is linked to the position they held during the relevant period, not simply everything they have ever been paid.
3. Does the employment agreement contain a written opt-back-in term? A specific written term in the employment agreement can opt the employee back into dismissal protections by stating that sections 67I and 113A do not apply.
4. How is their annual remuneration calculated? The threshold is currently $200,000 or more in annual remuneration, which can include more than base salary.

If any of those points are unclear, pause before treating the employee as outside ordinary dismissal protections.

What the $200,000 rule actually changes

From 21 February 2026, subject to the transition period and any valid written opt-back-in term, an employee whose annual remuneration meets or exceeds the statutory threshold generally cannot bring a personal grievance for unjustified dismissal. They also generally cannot bring a dismissal-related unjustified disadvantage grievance.

When the rule applies, the employer is not required to meet the third key good faith requirement that usually involves giving information, giving the employee a chance to comment, and considering that input before deciding. The employer is also not required to provide written reasons for dismissal on request under the usual rule.

That does not mean an employer can dismiss without any employment law constraints. The employee may still be able to raise other personal grievance claims on grounds that remain available under the Employment Relations Act 2000. The employer must still comply with the first two key good faith principles, which require parties not to mislead or deceive each other and to be responsive and communicative.

Notice still matters too. Even if the threshold applies, notice obligations still need attention. Check the notice provisions in the employment agreement and get employment-law advice if they are silent or unclear.

The threshold is currently $200,000. Employment New Zealand says it is reviewed annually and only changes if the relevant earnings measure increases, so it does not change automatically just because a new calendar year starts.

Why some senior employees still keep dismissal grievance rights until 21 February 2027

The transition period is where many employers go wrong. You cannot assume every employee employed before 21 February 2026 is protected, and you also cannot assume the threshold overrides the transition.

During dismissals before 21 February 2027, an employee can still raise an unjustified dismissal or dismissal-related unjustified disadvantage grievance if the official conditions are met. At the time of dismissal they must either be in the same job they were in immediately before 21 February 2026, or be in a different job because of a restructure with the same employer or a different employer. They must also raise the grievance within the ordinary 90-day timeframe.

There is one major qualification. The employer and employee can agree in writing, as a term of the employee's employment, that the new high-income rule starts earlier. If that happens, the transition protection can end from the agreed date.

A practical example shows why this matters. Suppose a general manager was already employed in the same role on 20 February 2026, earns above the threshold, and is dismissed in November 2026. If there is no written employment term bringing the change forward, that employee may still retain the ability to raise an unjustified dismissal grievance because the dismissal happened during the transition and they were still in the same job.

That is why the dismissal date, the employee's job history, and any written variation matter just as much as remuneration.

How to calculate annual remuneration without oversimplifying it

The law uses a position-based annualisation method with a 364-day lookback. It is not a salary-only shortcut, and it is not based on a future package you hope to put in place.

Use the current Employment Relations Act 2000, section 67I(4), and the official guidance together. Identify the pay periods that both start and end within the 364 days immediately before the first day of the pay period in which dismissal is notified. Employment New Zealand says to add only the remuneration for the time the employee was in the position they are being dismissed from. Divide that figure by the number of part or full days they held that position in the same lookback period, then multiply by 364.

The current pay period is excluded. If the employee changed roles, has only recently entered the position, or received payments spanning different periods, check the payroll history and take specific employment-law advice before relying on the threshold.

Employment New Zealand's dismissal rules for high income earners say annual remuneration includes PAYE income paid by the employer such as salary or wages, allowances, overtime, annual or special bonuses, cashed-up annual leave, payments for accepting restrictive covenants, gratuities, back pay including holiday back pay, lump sum holiday pay, and employee share scheme benefits.

Some amounts are excluded. Examples include accident compensation earnings-related payments, employer superannuation contributions unless paid as salary and wages, certain reimbursements, and fringe benefit tax items such as private use of a vehicle, low-interest loans, or discounted goods and services.

Edge cases need care. A one-off payment near the dismissal date, a recent promotion, mixed-role history, disputed bonus entitlement, or a share scheme benefit can change the calculation. If the numbers are close to the threshold, do not assume a payslip or annual salary line settles it.

When an employment agreement keeps the protections in place

Outside the statutory transition period, or if the parties want those protections to continue after transition, the employer and employee must agree in writing as a term of employment that sections 67I and 113A do not apply.

That written opt-back-in works as a package. It is not a pick and choose exercise for only part of the statutory protections. If the parties validly opt back in, the employer must follow the usual fair and reasonable dismissal rules and the employee regains the ability to pursue the same dismissal-related grievance grounds as other employees.

This is different from renegotiating exit terms or other employment terms. Better notice, severance, or other commercial protections may still be negotiated, but that is not automatically the same as opting back into statutory dismissal protections. The agreement needs the right written term as part of the employment relationship.

For employers, that means checking the current signed employment agreement and any later agreed contract variation letters. Do not rely on assumptions from recruitment discussions or on a clause that only talks about notice or payment on termination.

What still needs attention before you dismiss

Even where the high-income rule applies fully, some obligations clearly remain and others may still matter under the wider employment relationship.

• Good faith still applies. You must not mislead or deceive the employee, and you must remain responsive and communicative.
• The removed process step is limited. When the rule applies, the employer is relieved from the third key good faith requirement and from having to provide written reasons for dismissal on request. That is narrower than saying all procedural obligations disappear.
• Notice still matters. Check the contractual notice provisions and seek advice if the agreement is silent or unclear.
• Other personal grievance grounds may remain. The reform does not wipe out every grievance option. It mainly removes unjustified dismissal and dismissal-related unjustified disadvantage claims for employees who fall within the rule.
• Contract issues still need a separate review. If you are dealing with matters such as severance wording, incentives, restraints, confidentiality, or final payments, treat those as separate contractual or employment law issues rather than assuming the high-income reform answers them.

So while some dismissal protections narrow in certain cases, legal exposure does not disappear.

A sensible employer decision path

Before taking action, work through the issue in this order.

1. Confirm the proposed dismissal notification date.
2. Identify the exact position from which the employee will be dismissed.
3. Calculate annual remuneration using the statutory 364-day method and the included or excluded payment categories.
4. Check whether the employee is still protected by the transition because of the same-job or qualifying restructure rules.
5. Review the signed employment agreement for a written term opting back into both statutory protections, or for a written term of employment that brought the new rule forward during transition.
6. Check the surviving obligations on good faith, notice, and any separate contractual issues that still need to be handled properly.
7. Plan communications carefully so they are accurate and not misleading.

This order matters because employers often jump straight to package size. But package size alone does not answer whether the employee still has dismissal grievance rights, whether the transition still applies, or whether a valid specific written employment term opted the employee back in.

On the other hand, a newly hired executive on a post-commencement agreement may fall within the high-income rule immediately if their annual remuneration meets the statutory threshold and the agreement does not opt back in.

Those are very different outcomes, even if both employees appear to be paid at roughly the same level. That is why the safer approach is to document the calculation, check the job history, and read the current agreement before making assumptions about process.

Key Takeaways

• The high-income rule is not a base-salary test. You need to calculate annual remuneration using the statutory 364-day, position-based method.
• The current threshold is $200,000, but included remuneration can extend beyond wages to items like allowances, bonuses and some share scheme benefits.
• Some employees dismissed before 21 February 2027 may still keep dismissal grievance rights during the transition if they were in the same role before 21 February 2026, or moved because of a restructure.
• A written employment term can opt the employee back into both dismissal protections, and a written term of employment can also bring the new rule forward during transition.
• Even where the rule applies, notice, core good faith obligations and other personal grievance grounds can still matter.

If you are negotiating a new senior agreement or planning an exit, our team can help review the remuneration threshold position, draft or check opt-back-in clauses, assess notice and severance terms, and support a compliant dismissal process. Call 0800 002 184 or email team@sprintlaw.co.nz.