How bonuses and benefits are taxed Te āhua o te tāke i ngā moni tāpiri, i ngā painga hoki

Performance bonuses or incentives are paid in addition to your employee’s base wages and salary. They’re usually linked to agreed performance measures, so the amount of the bonus you pay depends on how well the employee has performed during the year. For example, bonuses and incentives can be paid for meeting sales targets or project milestones.

Bonuses are taxed depending on their type and frequency.

Frequent and regular bonuses are treated as part of an employee’s earnings and have PAYE deducted. A one-off bonus (such as an annual bonus) or a redundancy or retirement payment is treated as a lump sum payment.

Fringe benefit tax (FBT) is a tax on benefits employees receive through their work.

There are four main types of taxable fringe benefits:

• motor vehicles available for private use
• free, subsidised or discounted goods and services
• certain low-interest loans
• employer contributions to some funds, insurance and superannuation schemes.

Employee allowances are payments made to an employee in addition to their salary or wage, and can include payments for accommodation, meals or clothing. Some allowances are taxable and some aren’t.