It can be tricky working out how much PAYE to deduct from bonuses or lump sums. Bonuses or lump sum payments can include annual leave, back-pay and retiring or redundancy payments.
Overtime or any regular payments aren't lump sum payments. Follow these steps to work out the PAYE rate to use for a lump sum payment:
1. Work out what your employee has earned (before PAYE) over the past four weeks.
2. Multiply this figure by 13.
3. Add the lump sum payment to the figure in Step 2.
4. Use the table below to work out what income bracket your employee is in.
5. Deduct PAYE from the lump sum payment at the rate shown in the right-hand column for that income bracket.
Income bracket | PAYE rate to use (including ACC earners' levy) |
$14,000 or less | 11.95% |
$14,001 or $48,000 | 18.95% |
Greater than $70,000, but less than the ACC earners' levy maximum threshold of $118,191 (for the 2015 tax year) | 34.45% |
Greater than $118,191 | 33% (excludes ACC) |
You can use the PAYE rate of $34.45 cents in the dollar if the employee asks you to.
You will also need to calculate student loan, KiwiSaver employee deductions and employer contributions on lump sum payments (where applicable to the employee).
You don't deduct ACC earners' levy from redundancy payments and retiring allowances. In these cases, you'll need to reduce the above rates by 1.45%. Redundancy payments and retiring allowances are exempt from KiwiSaver employee deductions and employer contributions.
Source: Business Advisor: July/August Issue