Author: David Jenkins, NZPPA CEO

If an employer provides a taxable allowance to an employee this is an agreed term.  There is no legislation that states a taxable allowance must be provided to an employee, there are rules on how it is taxed etc.  If an employee receives a taxable allowance, it is usually stated in their employment agreement or company policy.

What is double dipping?

Double dipping is when the employee takes leave and at the same time gets paid a taxable allowance.  The taxable allowance is included in the gross for leave and the employment agreement also states that the taxable allowance is paid each week or even day.

Example: Taxable car allowance

Peter gets a weekly agreed taxable car allowance of $125.  In his employment agreement the taxable allowance clause states:

• The employee will receive a weekly taxable car allowance of $125.

Peter is a salaried employee and gets a salary weekly of $1500. They get no other payment except for the taxable allowance above.

For payroll, this will mean on top of their weekly wage or salary this payment will be included in the taxable gross earnings for the week.  It would be taxed the same as wage or salary (not an extra pay).

For leave provided under the Holidays Act, this taxable allowable would be part of gross earnings (depending on the calculation being used)

If the employee takes annual holidays based on the clause above the $125 taxable allowance would be included in the gross earnings for the calculations AWE and OWP (as it is a regular part of the week).

How to resolve double-dipping

The issue of double dipping is when the employee takes a week of annual holidays, they get paid the holiday rate, but the clause used in the example above states they will also be paid a weekly taxable car allowance.  Now this is not an issue caused by the Holidays Act it is an issue caused by how the clause in the employment agreement or policy has been written.  To resolve this the clause must be changed to remove the double dipping.

Example: Changing the clause

Clause creating the double dipping:

• The employee will receive a weekly taxable car allowance of $125.

Updated clause removing double dipping:

• The employee will receive a weekly taxable car allowance of $125. This allowance is not payable on any period of leave taken.

Changing the employment agreement

Payroll cannot just change the terms and conditions that have been agreed between the employer and employee in the employee employment agreement.  So, if the clause in the employee’s employment agreement has created double dipping the employer will need to consult with existing employees and seek their agreement on change the clause (Variation to agreement).  For any new employees joining the business the standard IEA template can be updated to remove double dipping (if a CEA is present that will need agreement from the union).