Q: When paying a person grievance claim and the record of settlement refers to 123(1) (b)
Will this payment be subject to PAYE / Kiwisaver ?
A: If the settlement agreement states a payment is under 123(1)(b) then that would be a compensation payment so not taxable.
But do look at the full settlement agreement as it may state other taxable payments that have been agreed to be paid.
Q: Our Employment lawyer stated :
In regard to your accounts team question. You may want to double check with your accountant how it goes through your books because I do not profess to be a tax expert but my understanding is:
- Payments under s123(1)(b) of the ER Act are classed as “monetary remuneration” and will be part of the employee’s gross income in this new financial year as it income at the time of receipt. The employer must make tax deductions from the payment and account to IRD in the normal way through payroll ie net amount to Employee and the tax component to IRD.
A: As it states Gross and it does refer to 123(1)(b) this is a taxable payment. If it had not mentioned gross and referred to sub section (c) it would be a compensation payment.
So tax it as an extra pay, yes for Kiwisaver, and 8% holiday pay (as there is nothing stating discretionary).