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Creating a Non-taxable Deduction Custom Pay Type

This example shows a WINZ deduction but can also be used for other after tax deductions such as  Ministry of Social Development 

Updated: October 2025

You have received a notice to start making deductions for Work and Income NZ from your employee’s pay- an amount of $52 per pay until advised to stop.

Info - Blue Block (1)

As this is a government department, you don't need your employee's consent to make these deductions.

It is your legal responsibility as an employer to do this deduction.

Let's break down this WINZ example.

This deduction is:

 ❌  A regular payment I can use system pre-loaded pay types for.
❌ A Ministry of Justice Fine. Go here to see how to do this in Thankyou Payroll.
✅ A payment to WINZ or other court order deduction.
 ✅ I prefer using a custom pay type for clarity on the payslip or/and reporting and tracking purposes.
 ✅  This is a non-taxable deduction, meaning after income tax has been calculated. 

The custom pay type & timesheet should have the following:

 ✅ Custom pay type created in the non-taxable section
 ✅ Rate: -1 (deduction rate is negative)| Per: unit
 ✅ WINZ amount entered on timesheet as applicable

Here is an example setup:

S11CPT_WINZDeduction

  • Create this custom pay type with a recognisable name in the Employee Profile - Pay Types tab and SAVE.
  • Select your recognisable pay type from the dropdown timesheet list.
  • Enter the WINZ deduction amount on a timesheet day.
  • The timesheet summary displays all non-taxable deductions together as one combined figure.
Take Care - Red Block Remember: You have to manage this payment to the third party from your business bank account as the funds remain there.
*Deductions set up with custom pay types are excluded from the 'You deposit' amount and must be managed by you.

Further Resources