How Do I Tax A Bonus, Commission, Or Other Extra Pay?

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

The Tax using Extra Pay method? option is found inside the Bonus/Commission section of the pay - not on ordinary pay items. Use the steps below for your app.

In the desktop app:

1. Open the pay for the employee.
2. On the right-hand side of the Edit Pay screen, locate the Bonus/Commission row and click the Edit button next to it.
3. In the Edit Bonus/Commission dialog, add a row for the payment and tick Tax using Extra Pay (infrequent lump sum) method.
4. Save the pay. Lightning Payroll calculates the correct PAYE using the extra pay rate.

In the online (web/mobile) app:

1. Open the pay for the employee.
2. Select Bonus/Commission from the pay sections on the left-hand side.
3. Add a row for the payment and tick Tax using Extra Pay method?.
4. Save the pay.

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.

For Employee Share Scheme (ESS) payments, see How Should Employee Share Scheme (ESS) Payments Be Taxed?