Bonus Payments and Holiday Pay Calculations

[Compressors]

At Christmas, our company paid a bonus to all employees with at least 6 months service.  The bonus varies each year and is genuinely discretionary and not an employment contract entitlement.

In processing holiday pay for those employees that took time off over the new year period, I was surprised to see that some of the MYOB calculated hourly rates for holiday pay (ANHL) were much higher than the standard ordinary hourly rates, especially for staff that do not have overtime, allowances, commission or hours in excess of their standard 40 hours per week.  

My investigations indicate that the bonus payment has been included in the calculation and I don't believe it should be. (I've checked this on the Department of Labour, MBIE website).

How can I change the way that MYOB calculates the holiday pay so that discretionary bonus payments are removed from the calculation?

I'd appreciate any tips or tricks to resolve this as I've had to manually over ride the hourly rate of those employees who took annual leave and had their rates affected by the bonus.

[Mike_James]

Hello @Compressors  Searching for "bonus" on the NZ payroll board found this one: How to record a bonus - should be helpful.

[Compressors]

Thank you. I'll give it a go, by setting up another bonus code as a taxable allowance. Hopefully that way it won't add into the holiday pay calculation. I'll let you know how I get on once I've fixed it up.

[Steven_M]

Hi @Compressors 

The Annual leave rate is based on Average weekly earnings or ordinary weekly pay whichever one is higher. This is standard and set out by the Holidays Act. If you have set the Bonus pay code as a Gross Earnings category it will include the amount that you pay them in the Average Weekly earnings thus making that higher than the ordinary rate.

I would recommend taking a look at Support Note: Annual leave rate calculation for more information into the annual leave rate and as mentioned by Mike_James Support Note:Paying bonuses and dealing with tax for that bonus

[Compressors]

I setup a new pay code, called it BONUS1, as a taxable allowance.

I went into the test area on payroll and restored my back up to the period before I did the bonus payments.

I entered one employee only to see what effect the changed BONUS1 code would have. This was the employee who had the biggest bonus, and who also took annual leave in the following pay period. The employee's hourly rate is $36.10, but their annual leave rate was being calculated as $36.746 prior to the bonus payment.

The outcome using BONUS1 was the same as when I used the BONUS code that was a "Gross Pay" code. The annual leave rate in the following pay period  shot up from his existing $36.74 per hour to $39.090425. 

Any clues?

[jenniek]

Hi Compressors,

Double check that the Bonus1 code is a taxable allowance code - and it didn't default to a gross earnings code - there is a warning that comes up when you set up a taxable allowance - which switches it back to a gross earnings code if you are not careful. Also make sure that original pay run is not in the history tab for that employee. You may have restored the wrong backup.

[Compressors]

Hi Jennie

You were so right about the defaulting back to a gross payment code. I restored and re-did it and the bonus calculation worked as a taxable allowance. Great!

Next problem I saw; the annual leave rate for this emmployee still shot up from 36.746 to 38.142.

When I investigated the calculations, I couldn't understandy why.

Can you suggest the best way to work this out. As my boss said, I've spent the best part of a day trying to work through this and it's probably not the best use of time, when probably there is someone out there that can look at my data and get the answer fairly quickly (albeit for a price).

Thanks for your assistance so far, and have a great weekend.

[jenniek]

Hi Compressors,

If you email me direct - I can take a look at it for you. There must be a reason why the average leave rate has increased - maybe it's not the bonus that is causing it - shouldn't be if it is now a taxable allowance.