Q: My manager is asking me to pay a sum of money to an employee as a Referral fee (or finder’s fee) and to process it as non-taxable. From what I understand this type of payment should be taxed as it is not any type of reimbursing allowance. Is there any occasion where it would be permissible to treat it is as non-taxable? I believe it should form part of gross earnings too so that the employee receives 8% for holiday pay. Please can you provide me some advice on how I should handle this one.

A: Rubbish if put through payroll this is a taxable benefit and PAYE must be deducted.  Reimbursing would mean the employee incurred an expense while working for their employer, how have they incurred an expense by referral?

Unless you put it through accounts but that could cause the employee and issue with IRD and it is income.

Q: This puts me in quite a difficult position to be instructed to do something that is not technically correct.  Fortunately it is a one-off payment, but all the same it does not make me feel very comfortable.

Do you know what comeback comes on Payroll, if I was to follow my manager’s instruction to the letter, and the same manager signs off the payroll?

Am I liable in any way?

A: I would advise the manager that it is not a non-taxable payment and if processed as such could put payroll and the business at risk of audit from IRD (either through the employee or through IRD checks of the business at a later date).  Advise that payroll recommends this payment is not made in this way.  Date it and file it so you did everything possible to advise the correct course of action.  By doing this you have done your job and that is all you can do.