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Extra pay Changes to personal income tax thresholds come into effect on 31 July 2024. However, until 1 April 2025, for extra pay calculations use the personal income tax thresholds 1 April 2024 to 30 July 2024. Using these rates means less chance of people getting a tax bill at the end of the tax year. Find out more | Personal income tax threshold changes

Lump sum payments – also called extra pay – include:

  • annual or special bonuses
  • cashed in annual leave
  • retiring or redundancy payments
  • payments for accepting restrictive covenants
  • exit inducement payments
  • gratuities (tips)
  • back pay, including backpaid holiday pay
  • lump sum holiday pay
  • employee share scheme benefits – if you choose to deduct tax.

Overtime or regular payments are not lump sum payments.

Calculating PAYE

You must deduct PAYE on lump sum payments. How you calculate PAYE depends on your employee's tax code, including whether they have a student loan or are enrolled in KiwiSaver. 

If your employee uses an M SL or ME SL tax code

You must deduct student loan repayments from the lump sum payment if your employee earns more than $464 a week.

Find out how much you need to deduct by calculating the following steps.

  1. Add up gross earnings for the pay period. This is regular pay plus any extra pay.
  2. Subtract the loan repayment threshold.
  3. Multiply the remaining amount by 12%. Employees may present you with a student loan special deduction rate certificate. In this case, use the rate specified. If not, the standard rate is 12%.

If you have already applied the threshold to regular wages and paid those separately, do not apply it to the lump sum. In this case, deduct 12% from the entire lump sum. The above calculation avoids this situation by combining regular pay and any extra pay.

If your employee uses an SB SL, S SL, SH SL, ST SL or SA SL tax code

You’ll need to deduct 12% from the whole lump sum payment to cover their student loan repayment. The pay period threshold does not apply.

If your employee is enrolled in KiwiSaver

You’ll need to deduct KiwiSaver contributions from all lump sum payments except:

  • redundancy payments
  • accommodation you provide
  • an accommodation allowance
  • free or discounted shares under an employee share scheme
  • payments under a voluntary bonding scheme funded by the Ministry for Primary Industries, Te Whatu Ora – Health New Zealand or the Ministry of Education.

Filing employment information

You need to tell us about the lump sum payment in the same period you made the payment. There are 2 options.

File separate employment information about the payment

This is outside your regular employment information filing schedule.

File the information about the payment within:

  • 2 working days of the date of the payment, if you file electronically
  • 10 working days of the date of the payment, if you file by paper.

Include information about the payment in the next regular reporting schedule

In some circumstances you can include the payment when you file employment information about the employee's next regular payday.

You can only do this if you:

  • file electronically
  • tell us about the payment before your ‘end date’ for the payment of PAYE and other deductions to us.

Your end date is the:

  • last day of the month if you pay PAYE and other deductions to us monthly.
  • 15th of the month and the last day of the month if you pay PAYE and other deductions to us twice a month.
Last updated: 01 Jul 2024
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