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Taxation of Holiday Pay

IRD advice re taxing holiday pay

In this article we look at the taxation of holiday pay.

We quote from the IRD Payroll News as shown on the left.

In this IRD example an employee is taking three of their four weeks annual leave.

Whenever a payment of holiday pay is made in Ace Payroll, the following dialog is shown immediately afterwards

Ace Payroll holiday pay tax calculation screen

Due to increasing marginal tax rates, tax on holiday pay reduces if apportioned over a number of weeks.

  • The default is for Ace Payroll to include holiday pay in the tax calculation for the current pay period, as shown above. This is fine when just a few days are taken.
  • If a single holiday payment is made for a number of weeks, the tax is significantly reduced by apportioning it over those weeks.
  • If necessary change the number of weeks from either the spin control or by ticking the appropriate week on the table. We have circled these items in yellow on the above screen shot.

Part Weeks
If the holiday spans part of a week, use the next greatest full week. In other words for a holiday of 2 weeks and 1 day, use 3 weeks.

Changing Value
If after having selected a number of weeks as shown above, you then need to go back and change the value, this is done from the PAYE Deduction Analysis dialog. It is fully documented in an associated FAQ.

Itemised Tax Calculation

  • Note in the above screen how the total tax deduction reduces as it is apportioned over a greater number of weeks.
  • Clicking any of the eight small calculator icons shown to the right of the tax column produces a report showing exactly how the tax is calculated.
  • Clicking the small calculator icon for a 3 week apportionment produces the following report
Ace Payroll itemised holiday pay tax calculation screen

More on public holidays

Public Holiday Entitlements
Ace Payroll receives many calls immediately after every public holiday, asking whether a particular employee is entitled to be paid for the public holiday more..
Public Holiday Taken
Use this method for an employee who did not work on the public holiday, but would have worked had the day not been a public holiday more..
Public Holiday Worked
Use this method for an employee who works at any time on a public holiday more..
Public Holiday Calendar
A facility in Ace Payroll to check when public holidays fall in this and future years more..
Christmas and New Year 2014/2015
Working out public holiday entitlements during the 2014/2015 Christmas and New Year period more..
Easter Sunday
Easter Sunday is not a public holiday, but shops cannot open more..
Easter Holidays 2014
The dates of Good Friday and Easter Monday this year more..
Waitangi Day 2014
Waitangi Day commemorates the signing of a treaty at Waitangi on 6 February 1840 more..
ANZAC Day 2014
Anzac Day is held on 25 April each year to commemorate New Zealanders killed in war more..
Queen's Birthday 2014
The Queen's Birthday is always observed in New Zealand on the first Monday in June more..
Labour Day 2014
Labour Day is always observed on the 4th Monday in October more..
Southland Anniversary Day
Controversy has always surrounded Southland Anniversary Day especially on when and how to observe it more..
Default Provincial Anniversary Day
Select the provincial anniversary day observed by the majority of your employees to make it the default more..
Payment For Sick Leave If Taken On A Public Holiday
You are not required to pay your staff time and a half if they call in sick on a public holiday they would have otherwise worked more..
Alphabetical Index
The Ace Payroll alphabetical index provides links to all documentation more..
Ace Payroll FAQ Contents
All the most common Ace Payroll questions grouped by categories in a short table of key words more..
Ace Payroll Frequently Asked Questions
All the most common questions we are asked at Ace Payroll listed in a question format and grouped by category more..

More on holiday pays

Cashing Up Holiday Pay
From 1st April 2011 it is legal for an employee to cash up to one weeks annual leave each year more..
Understanding Termination Accruals
Handling of accrued holiday pay upon termination can be confusing. Ace Payroll explains the concept of accruals and demonstrates how termination pay is calculated more..
Holiday 52 Week History
It is not absolutely necessary to enter a full 52 week earnings history for correct holiday pay calculation more..
Holiday Pay - Daily Rates
An explanation of the calculation of a daily rate for an employee taking holidays after a full years service more..
Leave Calendar
Use the leave calendar to record actual dates taken for leave more..
Employee Leave Profile
The employee leave profile records which are the normal days worked by an employee more..
Casual Holiday Each Pay
This tutorial shows how to have Ace Payroll automatically pay a casual employee 8% holiday pay every time they are paid more..
Taxation of Holiday Pay
This article shows how easy it is to tax holiday pay according to IRD requirements more..
Annual Compulsory Closedowns
An annual compulsory closedown is where a business traditionally closes down for a number of weeks each year, usually over Christmas more..
Changing Holiday From 8% Each Pay
The procedure for changing a casual employee over to being a permanent employee in Ace Payroll for holiday pay purposes more..
Termination Holiday 8% Part Year Payment
How to pay the 8% of part year gross for an employee who has been employed for more than a year, receives four weeks holidays a year, and is terminating their employment more..
ERS Holiday Pay FAQ's
A selection of holiday pay FAQ's from the Employment Relations Service more..
Holidays 4 to 5 Weeks
How to manually change an employee from 4 to 5 weeks annual leave more..
Holiday Pay Miscellaneous
The reason why only full days holiday pay owing is shown on payslips rather than fractional days more..
Alphabetical Index
The Ace Payroll alphabetical index provides links to all documentation more..
Ace Payroll FAQ Contents
All the most common Ace Payroll questions grouped by categories in a short table of key words more..
Ace Payroll Frequently Asked Questions
All the most common questions we are asked at Ace Payroll listed in a question format and grouped by category more..

Other leave sections

Public Holiday Entitlements
Ace Payroll receives many calls immediately after every public holiday, asking whether a particular employee is entitled to be paid for the public holiday more..
Public Holiday Taken
Use this method for an employee who did not work on the public holiday, but would have worked had the day not been a public holiday more..
Public Holiday Worked
Use this method for an employee who works at any time on a public holiday more..
Alternative Holidays
An Alternative Holiday is a day an employee is entitled to take off as paid leave, in return for having worked on a public holiday more..
Annual Holiday Entitlements
This article looks at entitlements to holidays as provided for by the Holidays Act more..
Annual Holiday Payments
This tutorial shows how to record holiday pay taken for an employee in Ace Payroll using the As Per Act method more..
Sick Leave
Entitlements to sick leave as provided for by the Holidays Act more..
Bereavement Leave
Entitlements to bereavement leave as provided for by the Holidays Act more..
Time Bank
The time bank feature allows for the accumulation of hourly leave outside the legal requirements of the Holidays Act more..
Irregular Work Pattern
In this article we look at the calculation of Relevant Daily Pay for an employee that works irregular hours more..
Leave Owing Report
The Leave Owing report provides an estimate of holiday pay owing to all staff at a selected date more..
Holidays Act 2003
The full text of the Holidays Act 2003 more..
Alphabetical Index
The Ace Payroll alphabetical index provides links to all documentation more..
Ace Payroll FAQ Contents
All the most common Ace Payroll questions grouped by categories in a short table of key words more..
Ace Payroll Frequently Asked Questions
All the most common questions we are asked at Ace Payroll listed in a question format and grouped by category more..

More On Tax Codes and Rates

Paying Contractors
How to set up a contractor covering items such as tax code, holiday pay and KiwiSaver more..
Tax Calculation Bills & Refunds
Tax bills & refunds, tax calculation checklist, monthly printed tax table discrepancies more..
April 2014 Changes
Recent legislative changes and Ace Payroll's latest newsletter more..
Tax Code Entry
Entry of tax codes, percentage tax deductions, student loan special tax codes, withholding tax at zero percent etc more..
Taxation of Holiday Pay
This article shows how easy it is to tax holiday pay according to IRD requirements more..
Overwriting PAYE Deductions
How to overwrite PAYE with your own value more..
Overwriting Default PAYE
How to overwrite an employee's default PAYE deduction more..
Student Loan Voluntary
How to pay back more than the minimum student loan more..
Payroll Software IRD Compliance
How you can be sure that Ace Payroll is fully IRD compliant more..
Twice Monthly PAYE
How do I pay my PAYE twice a month in Ace Payroll? more..
Alphabetical Index
The Ace Payroll alphabetical index provides links to all documentation more..
Ace Payroll FAQ Contents
All the most common Ace Payroll questions grouped by categories in a short table of key words more..
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