ANSWER ID:3048Bonuses are commonly used as staff incentives, but there is often confusion about how to process the tax on bonuses paid. There are two types of bonuses: Regular bonuses All amounts paid to employees as part of their agreements or paid periodically must be included in their Annual Leave and Holiday Pay calculations. Gratuitous or "one-off" bonuses To pay bonuses to your employees, create a new pay code then add the new pay code to the employee's pay. | UI Expand |
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| title | 1. Create a new pay code |
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| - Go to the Maintenance command centre and click Maintain Pay Codes.
- Create a New Pay Code called Bonus with the Description Bonus Pay.
- Depending on the type of bonus select either:
- Gross Earnings for a bonus that is paid periodically, OR
- Taxable Allowance for a "one off" bonus.
- Click OK.
- Click the General tab.
- Select the Allow the rate to be modified option.
The code probably won't be based on any particular rate so it's recommended you choose to allow the rate to be modified so it is easy to use in the future.
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| title | 2. Add the new pay code to the employee's pay |
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| - Go to the Prepare Pays command centre and click Enter Pays. The Enter Pays window is displayed.
- Double-click the applicable employee. The Enter Pay Details window is displayed.
- Add the newly created Bonus pay code to the employee's pay:
- Click Add Default as shown below.
 Image Added - Select the BONUS pay code from the list.
 Image Added - Click OK. The Set new Pay Default details window is displayed.
 Image Added - Click OK.
- Enter the bonus amount against the Bonus pay code in the Rate column, and enter 1.00 in the Quantity field.
 Image Added - Click OK.
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Dealing with tax on "one-off" bonuses involves adjusting an employee's tax with a Tax Override. | UI Text Box |
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| | For dealing with tax on regular bonuses, refer to the IRD website. |
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| title | Dealing with tax on "one off" bonuses |
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| - In the picture below a bonus of $1500 has been entered. Click into the PAYE Rate column, this will make the Tax Override button available.
The TAX (PAYE) at this point in the example below is $694.19.
 Image Added - Click Tax Override.
- Enter the bonus amount in the Extra Pay Amount box. If you know the net amount, use the PAYE Calculator as detailed below.
- Select the required Tax Code in other words SB, S, SH, or ST. See the thresholds below. If you require more information, visit the IRD website.
The tax code will depend on the employee's expected annual income for the year.
SB: $0 to $14,000 inclusive S: $14,001 to $48,000 inclusive SH: $48,001 to $70,000 inclusive ST: more than $70,000 In the example below the employee is expected to earn between $48,001 and $70,000 so the tax code 'SH' has been chosen.  Image Added - If this Extra Pay is due to an employee's retirement or redundancy, select the Extra Pay is exempt from ACC Earner levy option.
- Click OK. The TAX (PAYE) rate is now over-ridden accordingly as shown in the example below, in other words the tax has been reduced to $666.76.
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| If the employee uses an M SL, ME SL, ML SL, S SL, SB SL, SH SL or ST SL tax code, you must deduct student loan repayments from the bonus. |
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| title | Using the PAYE Calculator |
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| Occasionally, you may have the requirement to pay out an Extra Emolument amount (perhaps a bonus) where you are given the net amounts only. In this case the manual calculation of tax is difficult. To overcome this problem, your software has a PAYE Calculator where you can enter a net amount to calculate the gross amount. | UI Text Box |
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| When using this tool, make sure you use the correct tax code as shown above. |
To use the PAYE Calculator: - Go to the Tools menu and choose PAYE Calculator.
- Select the applicable TAX Code - refer above for guidance.
- Enter the net amount you wish to pay in the Net Pay field.
Click outside the Net Pay field (or press the Tab key). The gross pay (Total Earnings) and PAYE values will be calculated and displayed.
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