Termination Essentials

NZPPA Certificate in Payroll Termination Essentials (Level 4)

How leave provided under the Holidays Act is taxed

Leave taken in the final pay period:

▪ If leave under the Holidays Act is taken in the period relating to the termination pay, it is calculated under the standard rules of the Holidays Act and taxed as salary or wage.

Leave paid on termination as a lump sum (extra pay):

The following table identifies what payments are included or excluded from gross earnings for leave calculations on termination.

Types of leave payment taxed as an extra pay:

Taxed as extra pay

Included in 8% on termination:

1. Cashing out an alternative holiday on termination. 2. Paying out annual holiday entitlement on termination. 3. Paying out accrual “8%” on termination.

Yes

Yes

Yes

Yes

Yes

Yes

4. “Pay as you go” on termination

No

Yes

© New Zealand Payroll Practitioners Association, Mar 2026, Ver 9

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