Bonus Payments are created by adding a pay line to the pay for an employee.
There are different types of bonuses an employee might receive, differentiated by the effect they have on the employee's holiday pay accruals and effect on annual leave rate calculations:
Regular Bonus - the employee accrues holiday pay and the bonus will increase both the ordinary and average pay rates.
One-off Bonus - the employee accrues holiday pay but the bonus will increase only the average pay rates. Use it for bonuses that occur less frequently than monthly, e.g. quarterly or annually.
Discretionary Bonus - the employee does not accrue holiday pay and the rates are unaffected. A Christmas bonus is an example of this.
There are pre-defined Bonus pay codes set up in FlexiTime. The standard set-up is for there to be three pay codes available: Bonus - Regular, Bonus - One-off and Bonus - Discretionary. You can rename these bonuses to suit your requirements. Some companies that have been using FlexiTime for a longer time may have a single Bonus pay code. If this is the case you may need to change the pay code to meet your particular requirements. Edit the Bonus pay code under Setup -> Maintain Pay Code. For a One-off Bonus, tick Exclude from Ordinary Earnings. For a Discretionary Bonus tick Exclude from Holiday Earnings.
Another consideration when paying bonuses is how the the tax will be calculated. When a bonus is included in every regular pay (for example a monthly salaried employee paid a monthly bonus in each pay) then the standard bonus pay code set up is adequate. If the bonus is paid on a different cycle to your regular pays then you need to edit the pay code and record how many months the bonus covers:
In this example the bonus is paid every two months. You should also tick the Spans Multiple Pay Periods if the bonus is paid on a different cycle to the standard pay, for example an employee paid monthly on the 1st of the month, receiving a monthly bonus paid on the 15th of the month. In this case the Months should be set to 1.
When you come to pay the bonus open the pay, then edit the employee's pay within that. Select the appropriate Bonus pay code and press Add. All Taxable Allowance pay codes provide some extra options:
For a regular bonus payment, do not tick Extra Pay. The bonus amount will be added to the employee’s gross wages for the pay period to calculate PAYE. If it spans multiple months as set up on the pay code, the tax calculation will take this into account.
For a lump sum payment, tick Extra Pay. Only if the payment is for a redundancy, retiring allowance or employee share scheme benefit should you tick Not Liable for ACC Earners' Levy.
What tax rate is used for a lump sum payment?
If Extra Pay is selected, FlexiTime will work out the employee's average pay for the last four weeks and gross this up, plus this pay amount, to calculate the employee's annual salary. This calculated annual salary is used to determine the tax rate to be used for this pay.
For more information, please see the IRD's website.
Elected Lump Sum Tax (ELST) Rate can be used to select a higher tax rate to the calculated tax rate. If the calculated tax rate is higher than the ELST rate, the ELST rate will be ignored and the calculated tax rate will be used.
For more details on how tax is calculated on bonuses, see the instructions at the IRD.