With the introduction of the new annualised earnings calculation for Termination payments effective from 01 April 2025, the calculation for PAYE on Extra Pay has also been updated.
For Payment or Leave pay item categories, marked with a Special Tax Rate of Lump Sum Payments, we calculate the Annualised Income amount by summing the standard taxable pay items from the last four weeks or the month before the start of the current pay period. Manual payrun types or $0 periods will not be included in this calculation. IRD requires you to estimate the annual salary as close as possible so the right tax rate is used, and including unpaid periods would skew the result.
Depending on the pay calendar, it will multiply by the following to obtain an annual amount:
Weekly, multiply by 13
Fortnightly, multiply by 13
Monthly, multiply by 12
Using the annual amount, the relevant tax rate is determined to calculate the payment against.
Note: If the annualised amount is not able to be determined, then a payroll message will be displayed advising to calculate and enter this amount manually.
The employee can notify their employer to choose a higher tax rate. Refer to section RD 10(2).