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As your business grows, you will need to consider hiring staff to help you manage the day to day activities of your business. Before you start recruitment, however, it is a good idea to understand your employment obligations under New Zealand law. For example, if you are planning to hire employees, you are required to deduct income tax from their salary, wages or schedular payments. You will then need to pay these deductions to Inland Revenue within a certain period of time. This article will help you understand your Pay As You Earn (PAYE) obligations as an employer.

What is PAYE?

PAYE is a system for paying income tax and Accident Compensation Corporation (ACC) earner’s levy to Inland Revenue on behalf of your employees. When you employ staff, you need to:

  • deduct PAYE from their wages, salary or schedular payments; 
  • pay it to Inland Revenue by the due dates; and 
  • file your employees’ pay details.

How to Calculate PAYE

To determine how much to deduct, you will need to know your employee’s: 

  • tax code; and 
  • details of their salary or wage for the pay period.

As part of their onboarding process, your employee should complete their Tax code declaration (IR330) and give it to you. If you hire contractors, you will need to deduct tax from their schedular payments, unless they are exempt. The contractor needs to provide you with their Tax rate notification for contractors (IR330C).

You can use Inland Revenue’s PAYE tables or PAYE/KiwiSaver deductions calculator to work out how much tax to deduct. This calculator is useful for weekly, fortnightly, four-weekly or monthly pay cycles. However, it does not allow for extra pays like redundancy or special bonuses or schedular payments. If you pay out holiday pay at 8% of annual earnings, you can use Inland Revenue’s tax on holiday pay calculator.

PAYE includes an ACC earner’s levy component. This levy is a flat rate of $1.21 per $100 of liable income as of 1 April 2020.

How to File PAYE

In addition to calculating and deducting PAYE, each pay period you need to send Inland Revenue your employees’ pay details. You can file these either:

  • using Inland Revenue’s myIR online service;
  • from your accounting software; or
  • using paper forms (if you meet specific criteria).

You have to file your employment information every time you pay your employees:

  • two working days of each payday, if you file electronically; or
  • ten working days, if you do not file electronically.

When you file your employment information form, you must include the pay day and pay period your employee worked. You can enter your employees’ pay period in myIR using the on-screen method or in your payroll software. If an employee does not appear in myIR when filing your employment information, you have to add them as a new employee.

You can correct any mistakes: 

  • using myIR or your accounting software; or 
  • by paper or by phone. 

You will also need to let Inland Revenue know if you will not be paying wages for a month or more, or if you employ staff irregularly during the year. 

How to Pay PAYE

You have to pay PAYE deductions to Inland Revenue once or twice a month, depending on your gross annual PAYE and employer superannuation contribution tax (ESCT). Paying these deductions is independent of how often you file your employees’ information.

If your gross annual PAYE and ESCT is less than NZ$500,000 you need to pay deductions monthly, by the twentieth of the following month. Otherwise, you need to pay deductions twice a month. In both of these instances, you can choose to pay more often, either by internet banking, direct debit or using a credit or debit card.

These requirements may change with government regulations, so always check the employer’s section of the IRD website. 

Key Takeaways 

Many small business owners contract out or employ someone to do their payroll, especially once there are a few employees on board. However, managing PAYE can be straightforward if you set things up correctly. As an employer, you are required to calculate and deduct PAYE income tax from your employees’ salary, wages or schedular payments, and pay it to IRD once or twice a month. If you need help understanding your PAYE tax obligations or registering as an employer with Inland Revenue, contact LegalVision’s experienced employment lawyers on 0800 005 570 or fill out the form on this page.

FAQs

Is PAYE the same as income tax?

PAYE is a method of paying income tax to Inland Revenue on behalf of your employees. As an employer, you are responsible for calculating and deducting PAYE from your employees’ wages, salary or schedular payments, and paying it to IRD once or twice a month. 

What is the PAYE tax rate in NZ?

The PAYE tax rates depend on your employees’ tax codes. There is a secondary component to account for ACC earner’s levy, which is a compulsory contribution on the part of an employee to cover the cost of non-work injuries. Inland Revenue collects this levy on behalf of ACC. To determine how much to deduct, you can use the PAYE tables or calculator available on the Inland Revenue website.

How do I file a payday on IRD?

Each pay period, you need to file your employees’ pay details with Inland Revenue, either electronically or using paper forms. To file electronically, you can use Inland Revenue’s my IR online service or do it directly from your accounting software. To file using paper forms, you need to meet specific criteria.

What happens if an employer does not pay PAYE tax in NZ?

If you do not pay your PAYE deductions in time to Inland Revenue, you will receive a notice that a payment has not been received and then Inland Revenue will seek to recover the amount. If you do not pay the full amount by the due date, you can incur fines or other more serious criminal actions such as prosecution.

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