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
- back paid 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.
You must deduct PAYE on lump sum payments. How you calculate PAYE depends on your employee’s tax code.
Student loan repayments and KiwiSaver
If your employee uses an M SL or ME SL tax code and earns more than $380 a week
You must deduct student loan repayments from the lump sum payment. Find out how much you need to deduct by calculating the following steps.
- Add up gross earnings for the pay period. This is regular pay plus any extra pay.
- Subtract the loan repayment threshold.
- 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 or ST 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 a KiwiSaver member
You’ll need to deduct contributions from all lump sum payments except:
- redundancy payments
- retiring allowances
- 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, the Ministry of Health or the Ministry of Education.
Holiday pay paid in advance
There are two ways to calculate PAYE on holiday pay paid in advance of your employee taking annual leave. You can use the standard method or the alternative approach.
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
- You 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.
- The 15th of the month and the last day of the month if you pay PAYE and other deductions to us twice a month.