New Zealand employees can "cash up" up to one week of their Annual Leave entitlement each year.
This is subject to certain conditions, such as the fact that entitlements that fell due before 1 April 2011 are not eligible.
For more details on Holidays and Leave and how they should be taxed refer to the Employment New Zealand and Inland Revenue Department (IRD) links below:
Process Cashed-up Holiday pay
As per the New Zealand Government Employment website, gross earnings should not include (unless the employment agreement says otherwise), Cashed-up Holiday pay. Therefore, if the employee gets paid Cashed-up Holiday pay it cannot be paid using an Annual Leave Transaction via a Leave Reason, as this cannot be excluded from the Transaction Totals calculation set up in MicrOpay.
We recommend paying the employee Cashed-up Holiday pay with an Addition code. The payment made to the employee must be at least the same amount as if the employee had taken the holidays.
As per the IRD, cashed-up holiday pay is treated as a lump sum payment and is subject to PAYE, ACC levies, student loan repayments, and KiwiSaver deductions. Tax is calculated based on the employee's annual income. For more information, see pay a lump sum payment.
The employee's leave will need to be manually adjusted and the cashed-up hours added to the Leave Taken to reduce the balance of hours, see leave adjustment for more information. You may also add a note for this change in Personal Details using the Note icon for future reference.