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ANSWER ID:11325

Redundancy is when a termination of employment is the employer's decision.

Redundancy payments may be made to:

  • an employee whose position is no longer needed, or
  • a seasonal worker whose usual seasonal position is no longer needed (the employee works for you each year for a continuous period of less than 12 months at a regular time each year).

Redundancy payments are treated as an lump sum pay amount because:

  • they are NOT liable for ACC earner premiums OR KiwiSaver deductions, and
  • Student Loan Repayments are still required to be calculated.

The IRD have put together the following factsheet which explains how your redundancy payment or retirement allowance will be taxed and how redundancy or retirement may affect your entitlements:

http://www.ird.govt.nz/forms-guides/title/forms-r/ir1009-guide-redundancy.html?id=righttabs

 

1. Set up a redundancy pay code
  1. Go to the Maintenance command centre and click Maintain Pay Codes.
  2. Click New.
  3. For the Pay Code Type choose Taxable Allowance.
  4. Enter an applicable Pay Code and Pay Code Description then Click OK. Here's our example:
    Redundancy Pay Code
  5. At the following message, click NO.
    Image
  6. Click the General tab of your newly created pay code.
  7. Select the option Allow the rate to be modified when entering pay details.
    Image
  8. Click Close.
2. Process the redundancy payment
  1. Go to the Prepare Pays command centre and click Enter Pays.
  2. Double-click the applicable employee.
  3. Press F4 on your keyboard or use the Add Default button from the right-hand column.
  4. Select the Redundancy Pay Code created above then Click OK. Here's our example:
    Add Redundancy Pay Code
  5. Click OK to the Pay Default details window without entering anything.
  6. Enter the Quantity as 1.00 and enter the Gross amount being paid in the Rate field.
  7. Click the TAX (PAYE) pay code then click into the Rate column. The Tax Override button in the right-hand column will now be available.
  8. Click Tax Override.
  9. Enter the Extra Pay Amount, then choose the appropriate tax code. Use this table for guidance:
    Tax CodeThreshold (annual income including the redundancy payment)
    SB$14,000 or less
    S$14,001 up to $48,000
    SH$48,001 up to $70,000
    ST$70,001 or more
  10. Select the option Extra Pay is exempt from ACC Earner levy as shown in the example below.
    Image
  11. Enter zero (0.00) in the Quantity column for Kiwisaver.
  12. If you have salary sacrifice, enter zero (0.00) in the Quantity column for salary sacrifice.
  13. Click OK and continue processing the pay.

Is this redundancy part of a final pay?

The redundancy payment will override the tax rate for the whole pay. Therefore, if the redundancy is part of a final pay then you'll need to process the redundancy pay, then put through a separate pay for the final pay. For more information, see Preparing a final pay.