Protected net earnings – what is it? And what do you need to know?

All employees are entitled to keep 60 percent of their net (after tax) earnings to ensure they have enough money to cover their living expenses.

This is important when it comes to child support and court fine deductions.

Employers can be asked to take child support and court fines out of an employee’s pay cheque, but the absolute maximum you can deduct is 40 percent of their net pay.

This leaves the employee with 60 percent of their net earnings – enough to live on.

This seems simple enough, but there are a couple of things to take into account.

Protected earnings are usually only affected if your employee receives less pay than usual for some reason.

For example, if you’re asked to deduct more than 40 percent of your employee’s net pay, you must not deduct the full amount.

If you don’t deduct the full amount, you don’t make up the difference from future pays.

Inland Revenue or the Ministry of Justice will make arrangements with the employee to pay the balance owing.

Also, you must also still make other deductions from protected net earnings such as loan repayments and KiwiSaver deductions.

Employers legal obligations

As an employer, you are required by law to:

• Deduct child support and court fine payments from an employees’ wages if you are instructed to do so by either Inland Revenue or Ministry of Justice
• Continue making the deductions until they, not the employee, instruct you to stop
• Ensure employee privacy and protection from discrimination

Having payroll software makes it easy to set up deductions for employees that require them. Essentials Payroll has default deductions for both child support and court fines so setting them up is a breeze.

Because the software does the work for you, you can be confident the right amount is being deducted from their pay and have peace of mind that they will automatically receive their protected net income.