Bonuses
Lump sum payments
When you make a lump sum payment or "extra pay", it can affect the amount of tax your employee pays. It can also affect any ACC, KiwiSaver and student loan repayments and may affect their entitlements.
Most of these are entered into Smartly as a One off payment with the exception of back-paid holiday pay, lump sum holiday pay and cashed-in annual leave.
The exceptions are entered differently in Smartly, but are still taxed the same as lump sum payments. Lump sum holiday pay and back-paid holiday pay are entered as Annual leave taken, and cashed-in annual leave is entered as Annual leave cash up.
(One off payments, with the 'included in leave' option ticked on, are not included in the 4 week average/ordinary weekly pay calculation for annual leave).
Lump Sum payments ("extra pay") can include:
- back pay
- back-paid holiday pay
- lump sum holiday pay
- annual or special bonuses
- cashed-in annual leave
- retiring or redundancy payments
- payments for accepting restrictive covenants
- exit inducement payments
- gratuities
- employee share schemes benefits
Note: Smartly cannot alter tax amounts. We recommend getting in touch with IRD if you need more information.
How to set up a one off payment/bonus
1. Go to Run a pay.
2. Double click on the employee.
3. Now click on Add one off payment.
4. Enter the details of the one off payment. The employer needs to determine on their end if the payment should be included in leave earnings or not.
5. Now click Ok.
Regular bonuses
A regular bonus is any bonus paid frequently throughout the year. This is set up as an allowance in Smartly.
Calculations
Monthly bonuses covering more than one pay period
1. Add up the gross wages paid for a month’s income, e.g. if you pay weekly, add the four weekly payments together.
2. Work out the PAYE on the gross wages for the month.
3. Add the bonus to the gross wages calculated at step 1 and work out the PAYE for the month on the total.
4. Subtract the PAYE calculated at step 2 from that calculated at step 3. This gives you the PAYE on the bonus.
Bonuses covering more than one month
1. Divide the bonus by the number of months it covers. This gives you the monthly bonus amount.
2. Add the monthly bonus to the normal pay for the month and calculate PAYE. Select monthly in the PAYE calculator.
3. Calculate the PAYE on the normal monthly pay and subtract this amount from the PAYE calculated at step 2 above. This gives you the PAYE on the monthly bonus.
4. Multiply this by the number of months the bonus covers to get the total PAYE to be deducted from the bonus.
How to enter a regular bonus
1. Click on Run a pay.
2. Now click on Add pay component > Allowance > Add new.
3. Enter the name of the regular bonus and tick on the Regular bonus option, and click Next.
4. If the employee(s) will receive the same regular bonus that will be taxed over the same amount of months, enter it here. If they are different, leave the quantity, rate, and months blank.
5. The allowance will now be available when you enter a pay for that employee. View the allowance in the Run a pay area.
6. To edit the bonus, double click into the employee under Run a pay, and then click on the pencil to edit the regular bonus.
15. Enter the quantity, rate and amount and press Ok.
16. Click Save.
Note: This will only change the bonus for this one particular pay run. To change the bonus permanently, go to Run a pay > Add pay component > Allowance. Select the bonus and click Next. Make the necessary changes and then save.