Employee allowances Ngā utu tāpui kaimahi

You can give these allowances to employees to help cover the costs of meals and clothing they have to buy as part of their job. They're usually tax-exempt.

 Examples of common tax-free meal and clothing allowances are:

• payments to cover meals for employees working away from the employer’s premises
• payments provided to an employee to cover the cost of clothing for work, such as uniforms or protective gear.

These are paid to employees for travel between their home and work. These are usually taxed via PAYE, but will be tax-free for employees who:

• are working outside their normal hours – for example overtime, shift or weekend work
• are carrying work-related tools and equipment – for example, the employee usually takes the bus to work but must use a taxi or their own vehicle to transport work-related gear
• are travelling to do something you need done for your business
• have a temporary change in workplace
• have no adequate public transport system serving their workplace.

Benefit allowances are regular payments made in addition to an employee’s salary or wages. They include things like:

• Food allowances – for example, payments to subsidise meals at a workplace cafe or canteen.
• Clothing allowances – for example, to buy a suit to wear at work (but not a uniform).
• Free or subsidised board – for example, a farm worker paying below-market rent for a farm cottage.

Benefit allowances are taxable. Because you pay benefit allowances as part of your employee’s wages, PAYE is taken off these payments.

Reimbursing allowances are paid to employees to refund them for any unexpected on-the-job expenses that they incur — like paying for meals or travel when they’re away from their normal workplace.

If an employee pays for something out of their own pocket, you’ll need to reimburse them for the cost. To reimburse them, either:

• they can give you receipts for anything they pay for
• you can make a reasonable estimate of how much you should pay them back.

Reimbursements are generally paid to the employee in their pay. They’re added to the employee’s net salary after their PAYE has been taken out.

You don't pay tax on reimbursing allowances, unless you pay back more than the employment-related expense – in this case, the difference between the employment-related cost and what you pay is subject to PAYE.

Claiming GST on employee allowances

If you’re registered for GST, you can claim GST credits on reimbursements paid to employees for business expenses.

You can’t claim GST on any allowances paid to employees that aren’t reimbursements for employment-related expenses, or those paid for their private expenses.

Fringe benefit tax (FBT) doesn’t apply to employee allowances.

Employers, not employees, pay FBT when they provide a perk or benefit to their staff – for example, a gym membership or a work vehicle also available for personal use.

Keep good records about employee allowance payments, both for payments that are taxable and those that aren’t. You need to have the paperwork to prove your payments meet any tax-exemption standards.

Your employee allowance records are subject to all the standard record keeping rules. They must be saved for seven years and kept in English unless Inland Revenue approves another language.