You need to withhold when you make a compensation, sickness or accident payment to an individual if it is both:
- made because of that individual's or another person’s incapacity for paid work
- calculated at a periodical rate.
Withholding does not apply to payments made by an insurer to the owner of a relevant policy.
Withholding applies if, for example:
- weekly compensation payments are made by you to an injured employee
- weekly payments are made by you to the spouse of an injured employee
- a lump sum payment is made by you or your insurer, covering an employee for 4 weeks absence from work at the legislated or insured rate, calculated on a per week basis
- weekly compensation payments are made by an insurer to an injured worker made under a policy held by you
- weekly payments are made to cover loss of earnings for a worker who is unable to attend work due to injuries suffered in a local cricket match, when the amount is paid directly by the worker’s cricket club or by an insurer under a policy held by the club.
Withholding doesn't apply if, for example:
- a lump sum compensation payment is made by you or an insurer for pain and suffering
- a lump sum compensation payment is made by you or an insurer following the death of an employee
- weekly compensation payments are made by an insurer to an injured self-employed worker, made under a policy held by that worker.
Working out the withholding amount
You can use our online tax withheld calculator or tax tables to work out how much to withhold. If you are making any payments arrears or back pay, tax will also need to be withheld.
- Tax withheld calculators
- Tax tables
- Tax table for back payments, commissions, bonuses and similar payments (Schedule 5)