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https://help.myob.com/wiki/x/A64HAQ
ANSWER ID:33157
From 1 April 2011, the Holidays Act allows employers and employees to mutually agree to be paid out a maximum of one week of annual leave. This is known as cashing in annual leave.
There are a number of rules that apply to this scheme, so we recommend you go to the Department of Labour website for more information. A summary of the changes appears below:
- Employees need to request in writing that leave is to paid out
- Employers can decline any request
- Employers cannot require employees to have leave paid out
- Leave can only be paid out following an employee's next anniversary date on or after 1 April 2011
- A maximum of one week can be paid out during an employees entitlement year (that is, the period between holiday anniversary dates)
- Leave must be paid out at the same rate as when it is taken as holidays (that is, the normal leave rate calculation applies)
- Leave which is paid out is not included in gross earnings for the purpose of calculating leave rates and balances.
- Cashed in annual leave is considered a lump sum payment so KiwiSaver deductions will apply to the payment.
A new Annual Leave Paid Out pay code has been added to the default list of pay codes. You need to use the ANHLCASH-Annual Leave Paid Out pay code to ensure that leave balances are automatically adjusted and that leave is correctly calculated.
Do not use the ANHL-Annual Leave or HP-Holiday Pay pay codes for cashing in annual leave. Using these codes will inflate the employee's gross earnings and lead to incorrect leave calculations.
Adding the Annual Leave Paid Out pay code to employee defaultsBefore you can pay out annual leave, you need to add the ANHLCASH pay code to the employee's defaults.
- Go to Maintain Employees and select the relevant employee record.
- On the Pay Defaults/Totals tab select New and add the ANHLCASH pay code. Do not set a default quantity.
You record annual leave paid out when you enter pays. Note that the IRD rules for taxing lump sum payments (also known as Extra Pays) also apply to lump sums of annual leave paid out.
- Go to the Prepare Pays command centre and click Enter Pays.
Double-click the relevant employee. The Enter Pays Details window appears.
Enter the number of hours that you have agreed to pay out against the ANHLCASH pay code.
Note the following:
- You cannot pay out more than one week of annual leave in an employee's entitlement year.
- The ANHLCASH pay code will use the same rate as the ANHL-Annual Leave pay code. This rate can be modified in the Leave Details window (click the Leave button). The week is defined by the normal hours per week value entered in the Leave Details window (click the Leave button. The entitlement year is defined by the Next Holiday Anniversary Date in the Leave Details window.
- If the quantity entered (plus any leave already paid out), is greater than the normal hours per week, a message appears advising you how much leave can be paid out and how much has already been paid.
Calculate tax for the amount paid out
- Click the PAYE amount in the Rate field.
- Click Tax Override . The Pay Frequency/Tax Override window appears.
- In the Extra Pay Amount field, enter the total value of annual leave being paid out.
Select the appropriate tax code based on the employee s annual earnings. Refer to the table below as a guide:
Income Tax Code to Use $0 - $14,000 SB $14,001 - $48,000 S $48,001 - $70,000 SH $70,001 and above ST
All holiday and leave reports have been updated to include annual leave paid out amounts. Note that the Employee Holiday report will display Annual Leave Paid Out on a separate line.
