In this article we look at the taxation of holiday pay. We quote from the IRD Payroll News as shown on the right. In this IRD example an employee is taking three of their four weeks annual leave.

• The default is for Ace Payroll to include holiday pay in the tax calculation for the current pay period, as shown above. This is fine when just a few days are taken.

• If a single holiday payment is made for a number of weeks, the tax is significantly reduced by apportioning it over those weeks.

• If necessary change the number of weeks from either the spin control or by ticking the appropriate week on the table. We have circled these items in yellow on the above screen shot.

Itemised Tax Calculation

• Note in the above screen how the total tax deduction reduces as it is apportioned over a greater number of weeks.

• Clicking any of the eight small calculator icons shown to the right of the tax column produces a report showing exactly how the tax is calculated.

• Clicking the small calculator icon for a 3 week apportionment produces the following report