Taxing Cashed-in Annual LeaveThe IRD advise that if you agree to cash-in an employee's annual leave (up to one week), the payment they receive is considered a "lump sum". PAYE on lump sums is worked out at a flat rate, which changes depending on the employee's grossed-up annual income. Receiving a lump sum increases your employee's annual income. This means they'll need to adjust their family income if they have child support and/or Working for Families Tax Credits. For more information on the process of cashing in annual leave please see our eBook on Annual Holidays and Leave. This is available to download in the Library section of the Employers Toolbox or for purchase online for non-members. |