Redundancy Payment

A redundancy payment compensates an employee whose role is genuinely disestablished, typically set out in an employment agreement or negotiated at the time of restructuring. For tax purposes, IRD treats redundancy payments as 'extra pay' — the same lump-sum PAYE method used for bonuses — grossing up your annualised regular income with the payment to find a single flat tax rate, then applying that rate to the whole amount.

Redundancy payments are exempt from the ACC earner's levy and from KiwiSaver deductions (neither the employee's contribution nor the employer's), unlike ordinary salary or a bonus. Student loan repayments, however, still apply at 12% on the portion of combined income above the repayment threshold, the same as for regular extra pay.

Because a redundancy payment is usually made at or near the end of employment, IRD's annualisation approach uses your final regular pay periods (grossed up by the relevant weekly/fortnightly/four-weekly/monthly factor) rather than a full year of PAYE records, to estimate the correct marginal rate to apply.