How Should Employee Share Scheme (ESS) Payments Be Taxed?

Employee Share Scheme (ESS) benefits are taxed as extra pay in New Zealand. Lightning Payroll has a dedicated checkbox so the right rate is applied and the amount is reported correctly on the payday filing return.

How to record an ESS benefit

1. Open the pay for the employee.
2. Add a pay item for the ESS taxable benefit amount.
3. Tick Tax as an extra pay and then tick Employee Share Scheme (ESS).
4. Save the pay.

What changes when ESS is ticked

• The benefit is taxed at the extra pay rate matching the employee's annualised income.
• The benefit is flagged so it appears in the ESS field on the Employment Information submission.
• KiwiSaver contributions are not deducted from the ESS amount.
• ACC earner levy is not applied to the ESS amount.

Things to check

• The amount entered is the taxable value of the benefit, not the share value.
• Make sure ESS is only ticked for genuine share scheme benefits - other lump sums should be taxed as a normal extra pay.
• Confirm the employer has agreed to deduct PAYE on ESS (some employers leave it to the employee to declare).

If you are not sure whether a payment qualifies as ESS, check with the employer or Inland Revenue before ticking the option.