Adding a lump sum or bonus payment to an employee's Pay
Lump sums or bonus payments often have implications for taxation and leave calculations
Say you earn $500 a week. Your PAYE tax is calculated by assuming that you consistently earn $500 a week. If you get an additional bonus of $500 in one week, the tax for that week would be calculated by assuming you consistently earn $1000 a week, and you would be taxed a larger amount.
The simplest option and the most accurate, is to use a tax return to reclaim the overtaxed amount.
You can also use the "Lump sum" pay type. It is a distinct pay type and automatically is taxed as if spread over a month anyway.
Alternatively, you can spread the payment over a wider pay period to minimise the unnecessary tax payments for lump sum or bonus pay. This could be done using a custom pay type.
Lump sum as applied in the timesheet is a system pay type that can be used to pay any amount that is above standard pay.
It is a distinct pay type and is taxed as if spread over a month anyway.
You may wish to manually spread the bonus out, or you may need to give it a specific title. For this you'll use custom pay types.
To reduce the effect of a sudden high income pay period, we recommend spreading the payment out over a longer period. A good period of time is 2 to 3 weeks. Any longer than that may result in a tax bill at the end of the year.
Select "pay types" from the "employees" drop-down menu at the top of the page.
Create a new pay type
- Name the pay type so that it is clearly recognisable in the employees timesheet
- Set the rate as "1". The dollar amount will be set later, in the timesheet
- Set the rate per as 'per unit' because then the amount can vary
- Save the pay at the bottom of the page
For this example, the bonus will be spread over three weeks:
- Return to the Dashboard, and the appropriate Pay number
- Set the Pay period to start 3 weeks prior to the desired Pay day (the end of payments)
Select the timesheet of the employee getting the bonus
- Add an additional week to the Pay Period
- Move this addition week's start date to one week earlier than the original Pay
- Set a nominal amount for the first week ($1 or $10 or perhaps half the amount)
- Hit 'Update and save', and then refresh the page
Add an additional Row to the Pay Period by selecting the green icon
- Select 'Quarterly Bonus' from the drop down menu
- Add the second entry of the bonus, and enter the remainder
- Note: when entering the lump sum or bonus payments, the figure can be selectively excluded from all calculations regarding annual leave
- Select "update and save", and you're done