Tax on Final Pays

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A common question we receive is 'Why does the tax on the final pay differ from what the IRD calculator gives?'. We take great pride in matching the IRD calculator to the nearest cent, but this will seldom work for final pays because of the different way in which the tax is calculated.

A final pay will typically include amounts for paying out leave. This may be 8% holiday pay on earnings since the employee's last anniversary, or any other outstanding leave - typically annual leave and/or alternate leave.

This can result in pays that are much higher than a regular pay. If taxed based on the regular pay periods, and entered into the IRD calculator the tax will be high.

Any leave payments in a final pay are taxed as an Extra Pay.  Please see the end of this article for details. 

The other thing that can affect the tax deducted is if there is a retiring or redundancy allowance in the pay. When adding this to a pay you should tick 'Redundancy or Retiring Allowance' when you add the pay code. This means that the ACC component will not be deducted for this portion, something else that isn't catered for in the IRD calculator.

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