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Holiday pay that attracts the extra pay tax rate

As of March 2016, Inland Revenue has ruled that certain types of holiday pay must be taxed at the higher PAYE rate of extra pay, rather than the regular salary or wages rate.

The PAYE rate deducted depends on when the holiday pay is paid to the employee. In general, the:

This higher extra pay rate will be applied to holiday pay in advance, cashed up holiday pay, and termination payments. As you add holiday pay, Ace Payroll will calculate the correct PAYE rate for you.

Here’s how it would work if you entered holiday pay in advance for an employee:

  1. Click Calculate Pays, then Leave.
  2. Click Holiday Pay
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  4. For this example, click Current Employee (but remember, the Termination Payment and Cash Up Holiday Pay options will also attract the extra pay rate).
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  6. You’ll be prompted to Enter Days Taken and Enter Daily Rate, and then Confirm the details you’ve entered.
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  8. Click Holiday Paid In Advance (the Taking Paid Holidays option will attract the regular salary or wages rate).
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  10. Ace Payroll will calculate the extra pay tax rate for you. You can override this if you need, but it’s not recommended.
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  12. If you want, you can click report to see how the rate was calculated.
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  14. When you’re done with the report, return to the previous screen and continue. You’ll be prompted to Confirm the details to finalise the holiday pay.
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  16. The holiday pay will be entered in the Calculate pays window. If you need to, you can edit it by clicking in the field.

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