myIR, payments and more
Accounting for allowances and benefits for staff: Bonuses
A regular bonus is any bonus paid frequently throughout the year, such as:
- monetary incentives
- production bonuses
How to tax a regular bonus
- Add the bonus amount to the employee's gross wages for the pay periods in which they were earned.
- Deduct PAYE from the total, based on the employee's normal tax code. Use our PAYE calculator at Work it out >.
Tax calculations for more than one pay period
Monthly bonuses covering more that one pay period
- Add up the gross wages paid in the month, eg if you pay weekly, add the four weekly payments together.
- Work out the PAYE on the gross wages for the month by:
- using our PAYE calculator, and
- selecting monthly when asked "how often is employee paid?"
- Add the bonus to the gross wages calculated at step 1 and work out the PAYE for the month on the total.
- Subtract the PAYE calculated at step 2 from that calculated at step 3. This gives you the PAYE on the bonus.
Bonuses covering more than one month
- Divide the bonus by the number of months it covers. This gives you the monthly bonus amount.
- Add the monthly bonus to the normal pay for the month and calculate PAYE. Select monthly in the PAYE calculator.
- Calculate the PAYE on the normal monthly pay and subtract this amount from the PAYE calculated at step 2 above. This gives you the PAYE on the monthly bonus.
- Multiply this by the number of months the bonus covers to get the total PAYE to be deducted from the bonus.
|For the two situations above, include the PAYE on the bonus with the PAYE on the wages for the period in which the bonus was actually paid.|
Bonuses for a broken period
If a bonus covers a broken period, such as when an employee leaves, treat the bonus as being for the whole of the pay period. Add the bonus to wages in that pay period.