Answer
Extra pay amounts such as bonuses, commissions, back pay, and gratuities are taxed differently from ordinary wages. Lightning Payroll uses the Inland Revenue extra pay tax rate based on the employee's annualised income.
How to enter an extra pay
- Open the pay for the employee.
- Add a pay item for the extra pay amount.
- Tick Tax as an extra pay on the item.
- Save the pay - Lightning Payroll calculates the correct tax using the extra pay rate.
How the extra pay rate is chosen
Lightning Payroll estimates the employee's annual income (using the last four weeks of pay as a base) and selects the matching extra pay rate from the Inland Revenue table. ACC earner levy and student loan repayments are also applied where relevant.
Common extra pay items
- Cash bonuses and incentive payments.
- Commissions paid as a lump sum (regular commission paid each pay period can be treated as wages).
- Back pay for an earlier period.
- Retiring allowances and redundancy payments (handled by the termination wizard).
- Holiday pay paid as a lump sum outside the normal pay cycle.
If you need to override the calculated tax for a special case, you can adjust the PAYE pay item manually before saving the pay.
