Creating Custom Allowance Pay Types

An allowance is an extra payment on top of the employee's regular pay for something relating to their job. This article shows you how to create recognisable custom pay types for these for clarity on payslips, tracking and record keeping.

Updated: October 2024

Custom Allowance Pay Types can clarify your payslip and specify exactly what is included in the pay for record-keeping and tracking purposes. These are created in the Employee Profile. Follow this link to learn more about custom pay types and for a walkthrough of the Pay Types tab.

Let's look at Allowances

Any after-tax (non-taxable) allowances that provide a benefit to your employee, could be liable for fringe benefit tax (FBT) for the business. Please double-check with IRD or your accountant, as the IRD changes its ruling from time to time.

An allowance is usually applied to do the following:

to recognise extra qualities or skills an employee brings to the job
to recognise special responsibilities an employee has taken on
to recognise any unpleasant or inconvenient features of the job

The above types of allowances are income, so are taxed as part of employee’s gross wages.

to reimburse an employee for costs or expenditures incurred on behalf of the employer, or in relation to the work the employee undertakes.
- Travelling allowances are generally non-taxable if fringe benefit tax (FBT) doesn’t apply.

Reimbursing allowances are generally non-taxable and are not included in the employee’s gross wages.

*Reimbursing allowances are usually not processed through payroll, but can be for your convenience.

There are no compulsory allowances in NZ. If an allowance is paid to an employee, it is by agreement.

*Ensure that the terms of allowances are in writing and that when the allowance will apply is clearly stated, for example, if the allowance will apply when the employee is on leave. Making this clear will remove the possibility of double dipping (receiving a taxable allowance while on leave).

Here are some custom allowance set-up examples to set you off on the right track:

Non-taxable Meal Allowance	Non-taxable Tool Allowance	Taxable Housing Allowance
Non-taxable Mileage Allowance	Taxable Uniform Allowance	Taxable Higher Duties Allowance
Non-taxable Reimbursing Allowance - Kitchen Consumables	Taxable Shift Allowance	Taxable Wet Weather Allowance

Further Resources

To find out more about creating custom deduction pay types, follow this link.