A practical payroll and cash-flow guide for Kiwi business owners
When a valued employee asks for a pay rise, it can raise questions about affordability, payroll costs and fairness across the team. This practical guide helps Kiwi business owners review the employee’s contribution, calculate the full cost, check cash flow and manage the conversation and payroll changes with clarity and care.
Your Best Employee Wants a Pay Rise. What Should You Do Next?
The question lands when you are already juggling jobs, customers, invoices, payroll and the daily demands of running a business:
“Can we talk about my pay?”
Your mind starts moving quickly.
Can the business afford it?
How much will it really cost?
What happens if other employees ask for the same increase?
What happens if this person leaves?
A pay rise discussion can feel personal, emotional and financially uncomfortable. But it can also become a valuable opportunity to understand your employee, recognise good performance and take a closer look at the financial health of your business.
The strongest decisions usually begin with two things:
A calm conversation and clear numbers.
Begin With Curiosity
You do not need to give an immediate answer when an employee asks for a pay rise.
Take a breath, thank them for raising the matter and invite them to explain what has prompted the request.
You might say:
“Thank you for talking to me about this. I would like to understand what has prompted the request, then I can review everything properly and come back to you.”
Listen carefully.
The request may be connected to:
Increased responsibilities
New skills or qualifications
Stronger performance
Changes in the market rate
A competing job offer
A long period since their last pay review
A feeling that their contribution has gone unnoticed
A genuine conversation can reveal far more than the amount they are requesting. Sometimes the employee is looking for recognition, development opportunities, clearer responsibilities or confidence that they have a future within the business.
Kiwi employers must consider and respond to pay-rise requests in good faith. A pay increase may also need to be provided where it is required under an employment agreement or workplace policy, or where an employee’s rate must increase to remain above the legal minimum wage.
A clear and consistent pay-review process is especially valuable. When employees understand how pay decisions are made, conversations can feel calmer, fairer and easier to manage.
A pay rise may look like one simple increase, but the total employment cost grows with it.
Work Out the Real Cost of the Increase
Before agreeing to a pay rise, calculate the full financial effect.
For example, a $2 per hour increase for an employee working 40 hours each week represents:
$2 × 40 hours × 52 weeks = $4,160 in additional gross wages each year
That figure is the starting point.
Depending on the employee and your business, you may also need to consider:
Employer KiwiSaver contributions
Employer superannuation contribution tax
ACC levies
Overtime and penal rates
Allowances
Bonuses or commission arrangements
Holiday and leave pay calculations
The effect on charge-out rates and job margins
Whether similar roles will also require review
Additional staffing or replacement costs if the employee leaves
From 1 April 2026, the minimum compulsory employer KiwiSaver contribution increased to 3.5% of gross salary or wages for eligible employees, unless a temporary rate reduction or another exception applies. Employer contributions are also generally subject to employer superannuation contribution tax. ness levies are calculated using liable earnings and the levy rate that applies to the business classification. This means an increase in payroll can also contribute to a higher levy cost. er that matters is the total employment cost, together with the value and capacity the employee brings to the business.
Check the Current Minimum Wage
At the time of writing in July 2026, the adult minimum wage is $23.95 per hour.
The starting-out and training minimum wage rates are $19.16 per hour.
These rates came into effect on 1 April 2026 and apply before tax and lawful deductions. Employers should always check the current rates before processing a change, as minimum wage rates are reviewed regularly. Where an employee already earns above the minimum wage, a regular review can help you understand whether the rate still reflects the role, performance, responsibilities and current employment market.
Look Beyond the Bank Balance
A healthy bank balance today does not automatically mean the business can comfortably carry a higher wage every week.
Before making a decision, review your expected position over the coming months.
Consider:
How much cash is expected to come in?
Which invoices remain unpaid?
Are any large supplier bills approaching?
When are GST and PAYE payments due?
Does the business experience seasonal quiet periods?
Are current jobs producing enough profit?
Have material, fuel or supplier costs increased?
Are your prices and charge-out rates still appropriate?
Will the pay increase remain manageable during a slower month?
A simple cash-flow forecast can help you see whether the increase is sustainable.
You may discover that the business can afford the increase now. You may also find that prices, job margins, overdue accounts or business expenses need attention first.
This is where accurate bookkeeping becomes especially useful. Clear records allow you to make the decision using real figures rather than the amount sitting in the bank on one particular day.
A valued employee’s skills, reliability and contribution may be worth far more than the cost of a pay rise.
Consider the Employee’s Contribution
Pay decisions work best when they are connected to clear and consistent criteria.
Review areas such as:
Skills and qualifications
Quality of work
Reliability and attendance
Productivity
Customer feedback
Initiative and problem-solving
Additional responsibilities
Ability to work independently
Contribution to team culture
Support provided to apprentices or newer employees
Revenue, job output or profit influenced by the role
Consistent performance over time
A valuable employee may generate or protect far more income than the cost of their proposed increase.
Replacing an experienced employee can also bring recruitment costs, training time, lost productivity, disrupted customer relationships and additional pressure on the remaining team.
Pay rates and review criteria should be applied fairly. Kiwi employers cannot set different pay rates based on protected personal characteristics such as gender, race, ethnic or national origin, age, disability, family status, religious belief, sexual orientation or union activity.
Benchmark against other businesses
The amount another business pays may provide useful context, although every role and employment package is different.
When researching market rates, look at:
The employee’s actual responsibilities
Their experience and qualifications
Your location and industry
The complexity of the work
Hours and working conditions
Vehicle, phone, tools or equipment provided
Training and development opportunities
Bonuses or allowances
Flexibility and workplace culture
Opportunities for future progression
A role with a strong workplace culture, steady hours, supportive leadership and clear development opportunities may carry value beyond the hourly rate.
The aim is to create a complete employment package that feels fair, sustainable and clearly understood.
A Pay Discussion Does Not Have to End With an Immediate Yes or No
After reviewing the conversation, financial position and employee’s performance, several pathways may be available.
Approve the increase
Where the employee’s performance supports the request and the business can carry the cost, confirm the new rate, effective date and any related conditions in writing.
Offer a staged increase
A portion of the increase may begin now, followed by another review on an agreed date. The arrangement should be clearly documented.
Create a development pathway
Explain which skills, responsibilities or performance measures would support a future increase.
Be specific about:
What improvement is expected
How it will be measured
What support or training will be provided
How long the review period will be
The date of the next discussion
The employee should understand what consistent performance looks like and how they can progress.
Review the wider package
In some situations, the discussion may include training, additional flexibility, responsibilities, allowances or another benefit.
Any change should be checked carefully for payroll, tax and employment implications and then recorded in writing.
Decline the request with a clear explanation
Where the business cannot support an increase, explain the decision respectfully.
Give the employee a clear understanding of:
How the decision was reached
What the business can currently manage
What would need to change
When the matter can be reviewed again
Clarity gives the employee something practical to work towards and helps preserve trust.
Become Proactive With Pay Reviews
The easiest pay discussion is often the one that has already been planned.
A simple system may include:
Clear job descriptions
Pay ranges for different roles
Regular performance conversations
Recorded training and new responsibilities
Agreed review dates
Consistent performance measures
Payroll reports showing total employment costs
Cash-flow forecasts prepared before each review
Regular reviews allow you to recognise progress before an employee begins feeling overlooked.
They also create a clearer link between skills, performance, responsibility and pay.
Update the Paperwork and Payroll Correctly
Once a new rate has been agreed, make sure the change flows through every relevant record and system.
You may need to:
Confirm the agreement in writing.
Update the employee’s employment agreement or written variation.
Record the new rate and effective date.
Update the payroll software.
Check KiwiSaver, tax codes, deductions and allowances.
Review holiday and leave calculations.
Process the correct rate from the agreed pay period.
Check the payslip carefully.
File the correct employment information with Inland Revenue.
Keep supporting records securely.
Employers must keep accurate wage, time, holiday and leave records for six years, including records for employees who have left the business. es filing employment information electronically generally need to complete payday filing within two working days of each payday. error in the effective date, hourly rate or payroll setup can flow through to PAYE, KiwiSaver, leave balances and future pay calculations, so it is worth checking everything carefully.
How Office Management Solutions Ltd Can Help
At Office Management Solutions Ltd, we understand that pay discussions can create a lot of questions for a business owner.
We can help you bring the financial and payroll information together so you can approach the decision with greater clarity.
Our bookkeeping, payroll and business support services include:
Payroll processing
Wages and PAYE support
Payroll reports
Accurate wage and leave records
Cash-flow reporting
Job cost tracking
Bank reconciliations
GST support
Accounting and payroll software setup
Payroll software training
Xero support
MYOB support
Fergus support
CashManager, ACE Payroll, IMS Payroll and Farm Focus support
General bookkeeping and business administration
Based in Alexandra, OMS provides practical bookkeeping and payroll support for businesses throughout Central Otago and further afield through in-house and virtual services. We can help you understand what the figures are showing, calculate the payroll effect of a proposed increase and make sure an approved change is processed accurately.
Employment agreements and legal decisions may require support from an employment-law or human-resources specialist. OMS can work alongside your advisers by keeping the payroll, bookkeeping and financial records clear and up to date.
FREQUENTLY ASKED QUESTIONS
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An employer usually has no legal obligation to provide a pay rise or conduct a pay review unless it is required under an employment agreement or workplace policy. An employer must also increase a rate where necessary to meet the current minimum wage. Pay-rise requests should be considered and answered in good faith. mployees discuss their wages with each other?
Yes. Employees can choose to discuss or disclose their pay. Since August 2025, employers cannot take adverse action against an employee because they participated in a protected remuneration discussion. Employees may also choose to keep their pay private. uch does a $1 per hour pay rise cost?
For an employee working 40 hours each week, a $1 hourly increase equals approximately $2,080 in additional gross wages over 52 weeks. Employer KiwiSaver contributions, ACC levies and other employment costs may also need to be considered
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Yes. The agreed rate of pay should be included in the employee’s written employment agreement or a written variation. The effective date should also be recorded and updated in the payroll system. ong should payroll records be kept?
Employers must keep wage and time records, together with holiday and leave records, for six years. This requirement continues even after an employee has left the business. bookkeeper help with a pay-rise decision?
A bookkeeper can help calculate the payroll cost, prepare cash-flow information, review financial reports and process an approved change accurately. Employment-law advice and changes to employment agreements may also require guidance from an employment specialist.
A Clearer Way Forward
When a valued employee asks for a pay rise, pause before reacting.
Listen to what they are saying.
Review their contribution.
Calculate the true cost.
Look at your cash flow and margins.
Then make a decision that the business can sustain and explain it with care.
A good pay conversation can strengthen trust, recognise valuable people and encourage everyone to understand what growth looks like within the business.
When the bookkeeping and payroll records are clear, the conversation becomes easier because you have solid information in front of you.
Let’s have a quick coffee and see how we can help.
Office Management Solutions Ltd
Your Local Bookkeeping & Business Support Team
Central Otago
kathy@omsolutions.co.nz
027 534 7569
www.omsolutions.co.nz/booking
