Fixed Remuneration: NZ Employer Legal Obligations

A “fixed remuneration” package can sound like a tidy solution for small businesses: one number, one pay cycle, and everyone knows where they stand.

But in practice, fixed remuneration arrangements can create legal risk if the wording is unclear, if you’re actually paying for work patterns that don’t match reality, or if your “all up” figure quietly drops below minimum entitlements once hours and leave are taken into account.

If you’re employing staff in New Zealand (or you’re about to hire your first employee), it’s worth getting on top of what fixed remuneration really means, what you must include in writing, and how to avoid common compliance traps.

What Is “Fixed Remuneration” (And How Is It Different From Salary Or Wages)?

In New Zealand, “fixed remuneration” isn’t a standalone legal category. It’s a way of describing a pay structure where an employee receives a set amount of pay (often per year, fortnight, or week), regardless of the precise mix of hours worked in a given pay period.

In other words, it’s often used to describe an “all up” package. Depending on how you draft it, fixed remuneration might be intended to cover things like:

• ordinary hours (e.g. 40 hours per week);
• reasonable additional hours (sometimes described as overtime, sometimes not);
• certain allowances (e.g. a vehicle allowance);
• incentives, bonuses, or commission (although these are often variable, not fixed).

Employers can get tripped up when comparing salary vs wages vs fixed remuneration:

• Wages are typically hourly, with pay rising/falling based on hours worked.
• Salary is typically expressed as an annual amount and paid in equal instalments (often for agreed “ordinary hours”).
• Fixed remuneration is often used to mean “salary plus” (an amount intended to compensate for additional time/availability), but it still needs to comply with minimum legal entitlements.

If you’re using fixed remuneration to simplify payroll, that’s fine. The key is to be crystal clear about what the amount covers, what it does not cover, and how you’ll make sure the employee still receives at least their minimum entitlements in real life.

What Legal Obligations Still Apply Under Fixed Remuneration?

A fixed remuneration clause can’t contract out of New Zealand employment law. Even if you and your employee agree on a “total package”, you still need to meet mandatory minimums.

Here are the key legal obligations that still apply (and commonly cause issues when fixed remuneration is poorly set up).

Minimum Wage Still Applies (Even If The Pay Is “All Up”)

Under the Minimum Wage Act 1983, you must ensure the employee’s pay equates to at least the minimum wage for every hour worked.

This is one of the biggest risks with fixed remuneration: if the employee regularly works more hours than the agreement assumes, their effective hourly rate can drop below minimum wage without anyone noticing.

Practical example: if your agreement says the role is “40 hours plus reasonable additional hours as required”, but the person routinely works 55 hours, you should sanity-check whether the fixed amount still keeps them above minimum wage.

Leave Entitlements Still Apply (And Must Be Calculated Correctly)

The Holidays Act 2003 still applies to employees on fixed remuneration, including:

• annual holidays (and annual holiday pay calculations);
• public holiday entitlements;
• sick leave and bereavement leave;
• alternative holidays (days in lieu) where applicable.

Fixed remuneration doesn’t remove these entitlements. It also doesn’t automatically make leave pay “simple” - especially if the employee receives variable payments on top (like commission or allowances), or if their hours vary.

If your team works extra hours, weekends, or on-call patterns, it’s worth reviewing how you handle Time Off In Lieu and whether the employee may become entitled to alternative holidays.

Overtime/Additional Hours Rules Still Matter

In New Zealand, overtime rates aren’t automatically required by law (unless an employment agreement says so). However, what is required is that:

• you pay what you agreed to pay (contractually); and
• the pay still meets minimum wage requirements for total hours worked.

If your fixed remuneration is intended to include “reasonable additional hours”, you should define what “reasonable” means for your business. If you don’t, you can end up in a situation where the employee says the package was only ever meant to cover ordinary hours, and all extra hours should be paid on top.

If overtime is a regular feature of the role, it’s often safer to deal with it explicitly, and to align it with your broader approach to Working Overtime.

Deductions, PAYE And KiwiSaver Don’t Disappear

Fixed remuneration is still “salary or wages” for payroll purposes. That means you’ll generally still need to:

• make the right PAYE and other required deductions;
• meet KiwiSaver employer contribution obligations (where applicable);
• only make lawful deductions (consistent with the Wages Protection Act 1983).

Tax and KiwiSaver settings can be nuanced and depend on the employee’s circumstances. This article is not tax advice - if you’re unsure, it’s a good idea to speak with your accountant or check the latest guidance from Inland Revenue (IRD).

If you plan to include something like a “training repayment” or deductions for equipment, get advice first. Deductions can be lawful, but only if handled correctly and transparently.

Good Faith And Clear Communication Obligations Still Apply

New Zealand’s employment relationships are governed by the Employment Relations Act 2000 and the general duty of good faith.

So if you’re proposing a fixed remuneration package, you should be ready to explain:

• how the number was calculated;
• what work patterns it’s based on;
• what happens if the job changes (more responsibility, more hours, different roster).

This matters even more when you’re changing an existing arrangement (for example, moving someone from hourly wages to a fixed remuneration package). Changes generally need agreement - you can’t simply impose new terms because it’s operationally convenient.

What Should You Put In Writing To Make Fixed Remuneration Work?

If you’re going to use fixed remuneration, the employment agreement needs to do the heavy lifting. A vague clause is where disputes (and costly backpay claims) tend to start.

A properly drafted Employment Contract will usually address fixed remuneration with enough detail that both sides understand what they’re signing up to.

1. The Fixed Amount And How It’s Paid

Be specific about:

• the annual amount (or weekly/fortnightly amount);
• the pay frequency (weekly, fortnightly, etc.);
• whether it’s paid in equal instalments.

This might sound basic, but clarity avoids later arguments about whether certain payments were meant to be included or paid separately.

2. Ordinary Hours Of Work (And Any “Reasonable Additional Hours”)

Your agreement should state ordinary hours clearly, for example:

• 40 hours per week, Monday to Friday, 8:30am to 5:00pm (with reasonable variation); or
• a rostered arrangement with defined start/finish times.

If you also expect additional hours, consider including:

• what “reasonable additional hours” means in your context;
• any peak periods (e.g. end of financial year, seasonal demand);
• how you’ll monitor and review hours if they become regular.

If your business regularly relies on long weeks, it may be safer to build in either:

• a mechanism for paying extra hours; or
• a review clause that triggers if average weekly hours exceed a set threshold.

3. What The Fixed Remuneration Covers (And What It Doesn’t)

This is where you avoid misunderstandings. For example, your fixed remuneration might be intended to cover:

• ordinary hours;
• reasonable additional hours;
• a “responsibility component” for being a team lead.

But it might not cover things like:

• reimbursement of expenses (which should be separate);
• specific allowances (unless you expressly include them);
• commission payments (which are usually variable and should be explained separately).

If you do pay incentives, make sure the agreement clearly explains how they are earned, calculated, and paid. Some businesses prefer a separate Employee Commission Agreement so the “fixed” component stays genuinely fixed.

4. How Leave Will Be Paid

You don’t need to replicate the Holidays Act inside your agreement, but your document should still align with it.

For example, consider whether the employee has:

• consistent hours (making leave pay easier); or
• variable hours and/or variable pay components (meaning leave calculations can be more complex).

Where fixed remuneration is used alongside variable earnings, it’s especially important that payroll processes correctly calculate relevant daily pay/average daily pay and annual holiday payments.

5. Review Clauses And When Pay Will Be Revisited

A fixed remuneration package shouldn’t be “set and forget”. Include a review clause that makes sense for your business, for example:

• annual remuneration reviews;
• review triggered by material role changes;
• review triggered if hours consistently exceed an agreed range.

This helps you stay compliant and reduces the chance of resentment building up if workloads change.

Common Fixed Remuneration Mistakes (And How To Avoid Them)

Fixed remuneration isn’t inherently risky - but certain patterns show up again and again when small businesses run into trouble.

Mistake 1: Using Fixed Remuneration To “Solve” Overtime Without Checking Minimum Wage

If your employee starts working more hours than expected, the effective hourly rate can drop quickly. This can lead to:

• minimum wage breaches;
• arrears/backpay claims;
• employee relations issues (burnout, turnover, disengagement).

What to do instead: monitor actual hours, keep good records, and build a review trigger into the agreement.

Mistake 2: Not Keeping Time And Wage Records Because The Role Is “Salaried”

Even when someone is on a salary or fixed remuneration, employers must keep accurate time, wage, holiday and leave records. If a dispute arises, the lack of records can make it much harder to demonstrate compliance (particularly around minimum wage and leave entitlements).

What to do instead: set a simple system early - timesheets, roster records, or reliable digital tracking (appropriate to the role).

Mistake 3: Treating A “Package” As Including Everything (Without Saying So)

Employees often assume a salary covers ordinary hours only, unless the contract clearly says otherwise. If you want the fixed remuneration to cover additional hours or specific allowances, you need to say that in plain language.

What to do instead: define inclusions and exclusions clearly in the agreement, and make sure the employee understands it before signing.

Mistake 4: Changing Hours Or Pay Unilaterally

Sometimes businesses use fixed remuneration and then try to adjust hours when trade is slower. But changing working hours or pay usually requires agreement and a proper process.

If you’re considering reducing shifts or changing work patterns, you’ll want to think carefully about Reducing Staff Hours and how to manage consultation and contract variations appropriately.

Mistake 5: Confusing Employees And Contractors

Fixed remuneration is an employment concept. If someone is genuinely an independent contractor, they’re typically paid under a services arrangement and invoices, not wages.

Misclassification risk is real - and it can have flow-on consequences for tax, leave, and employment rights.

What to do instead: if you’re engaging a contractor, use a proper Contractor Agreement structure and get advice if you’re unsure whether the relationship looks more like employment in practice.

How Fixed Remuneration Interacts With Notice, Termination, And Payroll Clean-Up

Fixed remuneration also affects the “end of employment” mechanics. When someone leaves (whether they resign, you terminate, or there’s a redundancy process), you still need to ensure final pay is correct.

That usually includes:

• paying up to the final day worked;
• paying any outstanding annual holiday pay;
• paying any other entitlements under the agreement (e.g. commission earned, allowances owed);
• deductions only where lawful and agreed.

Some agreements include a clause allowing Payment In Lieu Of Notice (instead of requiring the employee to work out their notice period). If you want that flexibility, it’s best to set it out clearly in the employment agreement so everyone understands how it works and when it might be used.

It’s also worth remembering that a “fixed remuneration” arrangement does not reduce your obligations to follow a fair process for termination or restructuring. The pay structure doesn’t change the requirement to act in good faith and follow proper procedures.

Key Takeaways

• “Fixed remuneration” generally means paying a set amount, but it doesn’t remove your obligations under NZ employment law.
• You must still ensure the employee receives at least the minimum wage for all hours worked, even where the package is intended to be “all up”.
• Leave entitlements under the Holidays Act 2003 still apply, and payroll needs to calculate leave correctly (especially where there are variable earnings on top of a fixed amount).
• Your employment agreement should clearly set out ordinary hours, whether additional hours are included, and what the fixed remuneration does (and doesn’t) cover.
• Common risk areas include vague “reasonable additional hours” clauses, poor record-keeping, and assuming a package covers overtime/allowances without clear wording.
• If you need flexibility around incentives, consider documenting variable pay separately (for example, with an Employee Commission Agreement) so your “fixed” component stays clear.
• Changes to hours or pay usually require agreement and a proper process - fixed remuneration doesn’t let you change terms unilaterally.

If you’d like help setting up (or reviewing) a fixed remuneration clause, drafting an employment agreement, or sense-checking your payroll settings, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.