Your employees receive holiday pay either when they take annual leave or when they do not work on a public holiday. You include it as earnings when you pay it to an employee.
There are different ways to pay and work out tax on holiday pay.
Holiday pay in an employee's regular pay
You can pay holiday pay in an employee's regular pay:
- instead of their salary or wages when they take annual leave
- as an extra 8% of their gross earnings each time you pay them.
When you include holiday pay in an employee's regular pay you can use our calculator to work out:
- PAYE deductions
- student loan repayments
- KiwiSaver deductions, employer contributions and ESCT.
Holiday pay as a lump sum
You can pay holiday pay as a lump sum either:
- before your employee takes the holiday (holiday pay paid in advance)
- when an employee wants to cash in annual leave
- at the end of an employee's employment, to pay out the balance of their leave entitlement.
When you pay holiday pay as a lump sum it is usually taxed as a lump sum payment.
If you are paying holiday pay as a lump sum before your employee takes the holiday (holiday pay paid in advance) you have options for how to tax the payment.