EmpowerHR 2024.2.07 hotfix release notes

Here’s an explanation of the new process, based on an extract from the Payroll Calculations and Business Rules Specification (1 April 2025 to 31 August 2026, 03.02.2025 V0.8 – Inland Revenue TeTari Taake)

The following information is not intended to replace advice from your tax adviser or Inland Revenue. We encourage you to consult your tax adviser if any areas require clarification.

From 1 April 2025, there will be separate calculations for taxing extra pay for current or terminating employees.

Inland Revenue is introducing a new method for taxing extra pay “when employment ends”. This new routine will apply only when taxing extra pay for a terminating employee.

The existing taxation routine for extra pay is retained for use when taxing extra pay for current employees.

Each taxation routine uses a slightly different process to determine the tax rate for taxing extra pay as described below.

Rates mentioned in the following explanation and examples may change in future.

1. Taxing extra pay for a current employee

• The existing extra pay taxation routine remains unchanged for current employees.
• When an employee holds an STC tax code, tax the extra pay using the rate specified in the STC certificate.
• For all other tax codes, identify the current employee’s total value of taxable earnings (excluding all extra pay) paid in the last 4 weeks date range ending on the payment date for the current extra pay.
• Multiply the 4-weeks’ earnings by 13 to produce an annualised income figure.
• Add the current value of extra pay to the annualised income figure to arrive at the gross amount.

When an employee uses a secondary tax code, add the secondary tax code’s low threshold amount to the annualised income and the extra pay to calculate the gross amount.

• Compare the gross amount to the current annual earnings thresholds to find the relevant tax rate to tax the extra pay. When the gross amount is:
  • greater than $180,000 the tax rate is 39%
  • greater than $78,100 but less than or equal to $180,000 the tax rate is 33%
  • greater than $53,500 but less than or equal to $78,100 the tax rate is 30%
  • greater than $15,600 but less than or equal to $53,500 the tax rate is 17.5%
  • less than or equal to $15,600 the tax rate is 10.5%
• Student Loan repayments and ACC Earners’ Levy, when applicable, are calculated in addition to the above taxation.

2. Taxing extra pay when employment ends.

• Inland Revenue is introducing this new process for taxing extra pay being paid to a terminating or terminated employee (ie. “when employment ends”).
• When an employee holds an STC tax code, tax the extra pay using the rate specified in the STC certificate.
• For all other tax codes, start with identifying a terminating employee’s total value of taxable earnings (excluding all extra pay) paid in the last two paid pay periods* preceding the pay period containing the extra pay.
• Total the taxable earnings paid in the 2 pay periods. When employee was paid in:
  • 2 weekly pay periods, multiply the total by 26
  • 2 fortnightly pay periods, multiply the total by 13
  • 2 monthly pay periods, multiply the total by 6

The result is the annualised income amount.

• Add the value of the current extra pay to the annualised income figure to arrive at the gross amount.

When an employee uses a secondary tax code, add the secondary tax code’s low threshold amount to the annualised income and the extra pay to calculate the gross amount.

• Compare the gross amount against the current annual earnings thresholds to find the relevant tax rate to tax the extra pay. When the gross amount is:
  • greater than $180,000 the tax rate is 39%
  • greater than $78,100 but less than or equal to $180,000 the tax rate is 33%
  • greater than $53,500 but less than or equal to $78,100 the tax rate is 30%
  • greater than $15,600 but less than or equal to $53,500 the tax rate is 17.5%
  • less than or equal to $15,600 the tax rate is 10.5%
• Student Loan repayments and ACC Earners’ Levy, when applicable, are calculated in addition to the above taxation.

 *Understanding the term “the last two paid pay periods preceding the pay period containing the extra pay”...

When taxing extra pay at the end of employment, Inland Revenue has specified that the taxable earnings, from the last two paid pay periods preceding the pay period containing the extra pay, should be totalled and annualised when determining an employee’s extra pay tax rate. Inland Revenue also refers to these same pay periods as “the two most recent periods for which payment was made” elsewhere in its instructions.

To clarify the process for taxing extra pay when employment ends, and the interpretation of Inland Revenue’s terms “the last two paid pay periods preceding the pay period containing the extra pay” and “the two most recent periods for which payment was made”, we have created the following example.  The details are based on an example supplied by Inland Revenue (Payroll Calculations & Business Rules specification 2026 V0.8, dated 3 February 2025, pp.55-56, example 2).  

Example

• Using the above pay details, determine the tax rate for taxing the extra pay being paid to the terminating employee. Start by identifying the earnings from the two most recent periods for which payment was made:
  • Ignore the current pay period 25 April because it is the current pay period in which the extra pay is being processed.
  • Ignore period 18 April because the employee was not paid any taxable earnings.
  • Include taxable earnings from pay periods 4 April ($1,222.00) and 11 April ($1,266.76) because they are the last two paid pay periods preceding the pay period containing the extra pay.
• Annualise total taxable earnings from the two most recent weekly pay periods for which payment was made:

($1,222.00 + $1,266.76) x 26 = $64,707.76 annualised income

• Add the extra pay to the annualised income:

$3,187.43 + $64,707.76 = $67,895.19 gross amount

• Compare the gross amount $67,895.19 to the current annual earnings thresholds to find the relevant tax rate for taxing the extra pay:

$67,895.19 is greater than $53,500 and less than $78,100 therefore the tax rate is 30%.

• Calculate tax on the extra pay:

$3,187.43 x 30% = $956.22

• Check if the extra pay is liable for ACC Earner’s Levy?
• The gross amount is less than the maximum earnings threshold ($152,790.00) for ACC Earner’s Levy therefore calculate ACC Earner’s Levy on the extra pay:

$3,187.43 x 1.67% = $53.23

• Total PAYE to be deducted from the extra pay $3,187.43:

Tax $956.22 + ACC EL $53.23 = $1,009.45

• Net amount of extra pay due to the terminating employee:

$3,187.43 – PAYE $1,009.45 = $2,177.98