Getting made redundant is a gut punch, even when there's a payout attached. Unemployment was 5.6% in the June 2026 quarter according to Stats NZ, and plenty of Kiwis are working through restructures right now.
If a lump sum is coming your way, the decisions you make in the first few weeks can make a real difference. Here's how redundancy pay is taxed, what happens to KiwiSaver, and a sensible order for using the money.
Am I entitled to a redundancy payout in NZ?
Only if your employment agreement, a workplace policy or a separate agreement says so. There's no automatic legal right to redundancy compensation in New Zealand, according to Employment New Zealand.
You are entitled to the notice period in your agreement. If your agreement doesn't set one, your employer has to give reasonable notice. Read your agreement closely, and get employment advice if something doesn't add up.
How is a redundancy payout taxed?
A redundancy payment is taxable income, taxed at the lump sum rate. Your employer looks at your pay over the last four weeks, annualises it, adds the redundancy payment and uses the tax rate for that total. No ACC earners' levy is deducted from redundancy pay.
Because the payment is added to your annualised income, a big payout can be taxed at 33% or 39%. Once Inland Revenue knows your actual income for the year, it works out whether you've paid too much or too little. If you've had a short gap between jobs, you might get some tax back at the end of the year.
Is KiwiSaver deducted from redundancy pay?
No. Inland Revenue says your employer won't deduct KiwiSaver contributions from a redundancy payment or make employer contributions on it. Student loan repayments will still be deducted.
Your regular KiwiSaver deductions stop when your job ends. If you can afford it, a voluntary contribution of $1,042.86 before 30 June means you still get the full government contribution of $260.72 for the year. If money's tight, you can apply for a savings suspension of up to a year once you've been a member for 12 months.
What should I do with my redundancy payout first?
Slow down. There's no prize for deciding in week one, and a clear head makes for better calls. A simple order that works for a lot of people:
- Park it somewhere safe. A separate savings account or short term deposit keeps it out of your everyday spending while you plan.
- Work out your runway. Add up your essential monthly costs and figure out how many months the payout covers. That's your buffer until the next pay cheque.
- Clear expensive debt. Credit cards, buy now pay later and personal loans usually cost far more than any savings rate earns.
- Talk to your bank early. If your mortgage repayments will be a stretch, speak to your lender before you miss a payment, not after.
- Check your insurance. Some income protection policies have redundancy cover with strict conditions. Our post on whether income protection covers redundancy explains how it works.
Want help working out your runway and a plan for the rest? Book a free 15-minute consultation and we'll talk it through.
Should I pay off my mortgage or invest the payout?
It depends on how secure your next income is. Paying down a mortgage saves you interest at your mortgage rate, which is a sure return, but once the money's in the house it's hard to get back out if the job search takes longer than you hoped.
If you've already got a new role lined up, a lump-sum repayment when your fixed term rolls over, or into a revolving credit facility, can make sense. If you're still job hunting, most people are better off holding a decent cash buffer first. Any money you won't need for five years or more could be invested to match that timeframe. We compare short-term options in our term deposit vs PIE fund guide.
Common questions about redundancy payouts
How much tax will I pay on my redundancy payout?
It depends on your annualised income plus the payout. The PAYE rate for 2026-27 lump sums ranges from 10.5% to 39%, and any overpaid tax is sorted out once the year ends.
Does redundancy pay affect Working for Families?
It can. Inland Revenue counts it as income, so your Working for Families entitlement for the year may change. Update your estimate in myIR to avoid a debt later.
Can I avoid a tax bill at the end of the year?
If the payout pushes you into a higher bracket, you can ask Inland Revenue about a tailored tax code for any new job so enough tax is taken through the rest of the year.
Should I withdraw my KiwiSaver after redundancy?
Usually only as a last resort. KiwiSaver can only be released early for significant financial hardship, and the money you take out stops growing for your retirement.
How we can help
Invicta's advisers can help you build a plan for a redundancy payout that fits your situation. We'll look at your buffer, your mortgage, your KiwiSaver and your insurance together, then map out what to do with any money you won't need for a while. If investing is part of the picture, we'll explain the options and how they match your timeframe. Learn more about our wealth advice.
Give yourself a plan, not just a payout
A redundancy payout is often the biggest lump sum people see outside a house sale or inheritance. Spending a little time on a plan can turn a stressful change into a reset.
Want to talk through what to do with your payout?
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Sources
- Employment New Zealand, Redundancy
- Inland Revenue, Taxing employee redundancy
- Inland Revenue, Calculate PAYE for a lump sum payment (2026-27 rates)
- Inland Revenue, Redundancy and KiwiSaver
- Inland Revenue, Getting the KiwiSaver government contribution
- Stats NZ, Unemployment rate at 5.6 percent in the June 2026 quarter
General Information Disclaimer
The information in this article is general in nature and is not intended to be personalised financial advice. It does not take into account your individual goals, financial situation, needs, or circumstances.
Any examples, figures, rates, or scenarios are for illustrative purposes only and may change over time.
Before making any financial decision, you should consider whether the information is appropriate for your circumstances and, where appropriate, seek personalised advice from a licensed financial adviser.
Never cancel existing cover until new cover is in force.
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