Q: Hoping for some guidance please on best practices when it comes to maternity leave
Our company pays 26 weeks of paid parental leave to the primary carer after the birth or adoption of their child.
If the employee receives the government-funded maternity leave, should their tax code be changed to “S” in our payroll software (or would it remain as M and the IRD payment should have a tax code ‘S”.
Apologies if this is confusing, I just wanted to check if it is the responsibility of the employer to update the tax code or the employee.
A: It would depend on which payment would be main for the employee. In most cases the top-up would be less so the employee and not payroll would need to advise payroll if they wish to use a S tax code (payroll are not financial advisors we cannot tell an employee they should be doing this). Also, we do not know the full background of the employee’s tax affairs.
So maybe better to just state that they will need to talk to their financial advisor or IRD to get advice if there is a need to change to an S tax code.
Payments are taxable
Paid parental leave payments are treated as salary and wages, so they’re taxable just like employee income or self-employed income.
We’ll pay you the net amount, after deducting tax and any other payments you may need to make, like:
- child support payments
- student loan repayments.
We’ll add all the details of your paid parental leave payments to your income tax assessment or your IR3 tax return.
Reference: https://www.ird.govt.nz/paid-parental-leave