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07 Dec 2016

Commissioner’s interim operational position on calculating PAYE on non-resident seasonal workers’ holiday pay

CIR's interim operational position on calculation of PAYE on non-resident seasonal workers' holiday pay – applies 1 Apr 2016 to 31 Mar 2018.


A non-resident seasonal worker is subject to the “NSW” tax code, attracting a PAYE withholding rate of 10.5% on their New Zealand-sourced employment income, which is intended to be full and final.

As a result of the Commissioner’s Operational Position on calculating PAYE on holiday pay (effective from 1 April 2016), a person’s holiday pay received as a lump sum at the end of their employment is subject to the extra pay withholding rates. A non-resident seasonal worker is not exempt from the extra pay rules. This means a non-resident seasonal worker could be taxed above the 10.5% rate on this lump sum if the total of that person’s annualised income and the holiday pay is $14,001 or more.

To tax non-resident seasonal workers consistently at the NSW tax rate, the Commissioner has decided to temporarily reduce the applicable rate for extra pays received by a non-resident seasonal worker to 10.5%.


A non-resident seasonal worker is defined in section YA 1 of the Income Tax Act 2007:

Means a non-resident person for whom immigration instructions, certified under section 22 of the Immigration Act 2009, allow them to be employed in New Zealand under—
  1. the recognised seasonal employer (RSE) instructions; or
  2. the foreign crew of fishing vessels instructions.

These are workers who are in New Zealand on a temporary visa working under the Recognised Seasonal Employer scheme, as well as non-resident members of fishing crews. Non-resident seasonal workers are generally in New Zealand for less than a year.

The PAYE rules, as they apply to non-resident seasonal workers, have the following features:

  • The NSW tax rate of 10.5% is intended to apply to all New Zealand-sourced employment income derived as a non-resident seasonal worker.
  • There is specific provision under section 33D of the Tax Administration Act 1994 that removes the requirement for a non-resident seasonal worker to file a return at the end of the tax year and they will not receive an income statement from the Commissioner.
  • Tax tax deducted at the NSW tax rate is intended to be full and final (non-resident seasonal workers are not required to file a tax return).

A non-resident seasonal worker is entitled to holiday pay under the Holidays Act 2003 that is either included in the worker’s regular pay, or paid as a lump sum at the end of the worker’s employment.

Following the Commissioner’s Operational Position on calculating PAYE on holiday pay, lump sum holiday pay paid out at the end of a person’s employment is treated as an extra pay for income tax purposes and subject to the tax rates for extra pays. Non-resident seasonal workers are not exempt from the extra pay rules.

The applicable withholding rate is determined by adding the extra pay to the annualised value of the PAYE income payments received by the non-resident seasonal worker in the four week period prior to the receipt of the extra pay. If this total is $14,001 or more, the applicable rate would be higher than the 10.5% flat rate that is intended to apply to such taxpayers. This outcome is inconsistent with the intention of the NSW rules.

Interim operational position

Given the special circumstances, the Commissioner has determined, pursuant to section RD 11(1) of the Income Tax Act 2007, that the NSW tax rate applies to a PAYE income payment that is an extra pay paid to a non-resident seasonal worker who has notified their employer that their tax code is “NSW”.


Mike is in New Zealand for 6 months working as a fruit packer for a Recognised Seasonal Employer. He declares his tax code as “NSW”. At the end of Mike’s 6-month contract, he receives his final weekly pay of $610 and his holiday pay entitlement of $1268.80 (based on 8% of Mike’s gross earnings). If Mike’s employer had applied the extra pay rules normally, 17.5% of PAYE would have been deducted from the holiday pay. Instead, this interim operational position allows Mike’s employer to deduct PAYE from the holiday pay, as well as the final weekly pay, at a rate of 10.5%.

This interim operational position is applicable to such PAYE income payments made between 1 April 2016 and 31 March 2018.

This operational position is put in place temporarily while the Commissioner works to clarify the PAYE legislation in relation to non-resident seasonal workers to give full effect to the intention of Parliament.

We realise that in some cases PAYE at a greater rate than 10.5% may have been deducted from holiday pay lump sums in that period (which was correct as set out in the Commissioner’s previous operational position - Commissioner’s Operational Position on calculating PAYE on holiday pay). However, where deductions were made consistent with the Commissioner’s previous operational position, despite the exercise of section RD 11(1) in this circumstance, the Commissioner is unable to refund any difference to non-resident seasonal workers.