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Extra pay payments are lump sum payments made in addition to your employees usual salary or wages. For example, annual or special bonuses, cashed-in annual leave, commissions, retirement or redundancy payments, gratuities, backpays, restrictive covenant or exit inducement payments, lump sum payments on termination and return-to-work payments.
Important: Lump sums that are paid regularly or for overtime are not extra pay payments
From 1 April 2025 a new special rule requires employers to determine the marginal tax rate for extra pay on termination of employment by adding the extra pay to the annualised value of the last two pay periods. The existing, “four week” rule will continue to apply in other cases.
The Government have made this change to reduce the taxation inaccuracies which can occur when extra pay is received on the termination of an employee’s employment.
The “gross up amount” continues to drive the tax rate applied to “extra pay” transactions. The key point for this change is that same calculation MUST be used across all “extra pay” transactions within a termination pay or post termination pay. This means the only Extra Pay Details field you can now influence in a termination pay or post termination pay for an individual allowance is the Redundancy or retirement field. Attempting to edit any other "Extra Pay Detail" field will be ignored.
Legislative references :
Redundancy or retirement payments are not liable for the ACC Earner Levy. PayGlobal enables you to control this both on the Allowance record - Details (i) tab and in the Transaction Entry - Allowance Tax Overrides tab. T
PayGlobal has the ability to calculate the employee's grossed-up amount automatically or you can help by providing the annualised income portion.
The value needed for the Extra Pay Calculation from 1 April 2025 is based on whether the Extra pay is for a current employee or an employee being terminated or receiving further payments post termination.
How PayGlobal calculates the "Gross-up annual amount" and then the "Grossed-up amount" are described as follows:
Current Employees
This value represents all salary/wage payments made to the employee in the 4 weeks prior to and inclusive of the day on which the extra pay was paid.
For example, if the Payment date = 28/08/2013 on this pay sequence, then the four-week period would go back to 01/08/2013.
This value is used to determine the tax rate to apply to the Extra Pay payment for all employees except those with tax codes that have a flat tax rate. If the employee has a flat rate, that rate is applied to the to extra pay.
PayGlobal calculates the Grossed up annual amount as follows:
Note: Apart from this current pay, only closed pays are included in the calculation. Regardless of whether the extra pay transaction is in a standard or manual pay, to avoid incorrect tax calculations, please ensure all related pays in the previous four weeks are processed and closed.
Note: The only amounts excluded from the Grossed up annual amount calculation are additional extra pay amounts in the current pay or the whole current pay if it contains a taxation override transaction for extra pay.
The details of the calculation are recorded in the Process Pay Audit Log.
Termination and Post Termination Pays
From 1 April 2025 onward this value will default from the Termination transaction. Whilst this field may look editable, if you attempt to set a value it will be ignored. This is because, the tax rate applied must be the same for every Extra Pay transaction in a termination/post termination pay to avoid the employee being under taxed.
How "last two paid pay periods" data is found
From the pay being processed,PayGlobal looks at the linked PTD's Start Date, then looks for all Pay Sequences linked to "earlier" PTDs.
"Earlier" PTDs are those with a Period End date less than that current pay's PTD start date. It then gets only those pay sequences where the employee’s “Taxable Gross” minus “Extra Pay” amount is non-zero. Then it groups them by PTD Code and take the two last groups, ordered by PTD end date descending. PayGlobal uses the latest two groups as the as "last two paid pay periods".
The lookback goes as far back as the employee's employment start date (if necessary). Exception: Employees starting before 2022 and not paid in any pays since. The is because PayGlobal only started recording that a pay contained extra pay data in the 2022 Tax release.
How employee's normal income is Annualised
If there are combinations of pay frequencies, then two singular annualised amounts are added together and divided by 2 to give an averaged annualised amount. The rest of the calculation is then as per "current employees"
