When you provide benefits to employees in the form of an Employee Share Scheme (ESS), the benefit the employee received (i.e. the difference between the amount they paid for shares and the market value) is taxable.
The amount of the benefit needs to be sent to IRD. PayHero's payday filing will do this automatically for you, but it does require our support team to make a change to your ESS pay item so it will get correctly filed. The change will also ensure the earnings are flagged as being exempt from ACC and KiwiSaver.
As an employer you can choose to deduct tax on the benefit via the employee's pay, or to leave it to the employee to pay the tax. Note that if you are deducting tax it is easiest to include the benefit in a pay where the employee has sufficient earnings to cover the tax on the benefit, or they will end up with a negative take-home pay.
Additionally you need to add a deduction pay item to the pay where you are declaring the benefit, to ensure you don't actually pay it out in cash! Here's how you set up your pay items.
Pay Item - Discretionary Payment, used if the benefit is taxed
The Pay Item you'll require if you're deducting tax should be set as a Discretionary Payment type. You can do this from Manage > Pay Items > Earnings and set it up similar to the following:
Using a Discretionary Payment ensures the the ESS won't change any leave rates nor accrue holiday pay.
Pay Item - Reimbursement, used if the benefit is not taxed
The Pay Item you'll require if you're leaving the employee to handle their own tax should be set as a Reimbursement type with a Variable Rate Type. You can do this from Manage > Pay Items > Reimbursements and set it up similar to the following:
Important: once you have the Discretionary Payment or Reimbursement pay item set up, email email@example.com with your company name and the name of the pay item that needs to be updated.
Pay Item - Regular Deduction
To offset the ESS earnings in the pay the Pay Item you'll require is a Deduction type with a Variable Rate Type. You can add this from Manage > Pay Items > Deductions and set it up similar to the following:
Once the support team has updated your pay item, you can add the two pay items into the pay, like this if taxed:
or with the benefit under the Reimbursement section if not taxed: