Allowances over and above salary or wages
There is no specific legal entitlement to allowances. Allowances are extra payments paid to an employee to cover employment-related expenses.
The payment of and level of allowances, over and above salary or wages, can be agreed to by the employer and employee. Generally, allowance payments are used to recognise:
- extra qualities or skills an employee brings to a job
- special responsibilities an employee may have taken on (for example, leading hand or supervisor)
- any unpleasant or inconvenient features of their work.
Employees may be paid allowances to cover costs or expenses they have paid on behalf of their employer.
If an employee incurs a cost on their employer's behalf it is good practice for the employer to reimburse or compensate them. If allowances are a regular feature of a job, it’s a good idea to have them clearly specified, either in an agreement or in a workplace policy, so that it’s clear for everyone about when and how they apply.
An employer should also check with Inland Revenue on the payment of allowances, and which ones are taxable and non-taxable.