Can you please advise/confirm how a termination should be taxed.:

1.    Normal termination where an employee leaves for another job. Do you tax the leave and other payments based on what the employee grossed for that period or do you tax the payment over the number of weeks the payment equates to. eg: Weekly employee – Salary/Pay Rate – $1469.34 per week Tax Code M Normal weeks pay – $1469.34 Annual Leave – 114 hrs entitlement – $3276.38 Gross Earnings Since Anniversary – $12734.00 GESA payment – $12734.00 + $1469.34 + $3276.38 = $17479.72 X 8% = $1398.38 Total Gross = $6144.10 Is tax based on $6144.10 for the period

2.    Redundancy. Do you tax the leave and other payments based on what the employee grossed for that period and then add to the tax calculated on the redundancy pay or do you tax the payment over the number of weeks the payment equates to, and then add it to the tax calculated on the redundancy pay. eg: Weekly employee – Salary/Pay Rate – $1469.34 per week Tax Code M Normal weeks pay – $1469.34 Annual Leave – 114 hrs entitlement – $3276.38 Redundancy – $5000.00 Gross Earnings Since Anniversary – $12734.00 GESA payment – $12734.00 + $1469.34 + $3276.38 = $17479.72 X 8% = $1398.38 Total Gross = $6144.10 + Redundancy $5000.00 = $11144.10

Answers:

1.  For question one Holiday pay are taxed in the period you actually pay them.  You can use the IRD online calculator or the PAYE deduction tables to work it out.

2. Redundancy payments are taxed at the lump sum rates, but are not liable for ACC earners’ levy. Redundancy compensation is taxed separately from other payment that may be paid on termination (salary, leave entitlements another payment agreed to be paid to the employee.