Skip to Content
MenuClose

myIR, payments and more


Employer responsibilities
Ngā kaiwhakawhiwhi mahi takohanga

Taxing restrictive covenant and exit inducement payments

Definitions

Restrictive covenant payments

These are payments made in return for a person agreeing to restrict their ability to perform services, examples include:

  • Payments made to an employee on termination if they agree not to carry on business in competition with their former employer.
  • When an employee enters into a restrictive covenant with a wholly owned company and then sells the shares in that company to their employer.

Exit inducement payments

These are payments made by a prospective employer or contractor to a person to give up a certain status or position, examples include:

  • Payments to employees to entice them to leave their current position.
  • Payments to employees whose job status changes, even if they don't have a career change.

How to tax

These types of payments are classed as source deduction payments, so PAYE must be deducted at the lump sum rate, see Lump sum payments > for more information.