What is PAYE in New Zealand?

What is PAYE?

PAYE stands for Pay As You Earn. It’s the backbone of the New Zealand tax system: your employer deducts income tax from your salary or wage every payday and sends it to the Inland Revenue Department (IRD) on your behalf, so your tax is paid gradually through the year instead of in one bill. Alongside income tax, PAYE also collects the ACC earner’s levy. The tax year it operates on runs from 1 April to the 31 March balance date the following year.

What PAYE deductions include

When your employer runs payroll, the PAYE deduction taken from your gross pay covers income tax and the ACC levy. In the same pay run your employer may also deduct KiwiSaver contributions and student loan repayments, then pay all of it to IRD. What’s left is your take-home pay. You can calculate your take home pay and see the full breakdown with our PAYE calculator.

Your tax code

The employee’s tax code tells the employer how much PAYE to withhold. Most employees use M (or ME) for their main job, with an SL suffix if they have a student loan. If you don’t give your employer a tax code, you’re taxed at the no-notification rate of 45%. A second job uses a secondary tax code instead. Using the wrong tax code doesn’t normally trigger a penalty, but it does mean the amount of tax deducted through the year is wrong — so you end up with a bill or a refund when IRD squares up your annual income after 31 March.

The employer’s role

Your employer is responsible for working out the correct PAYE on each employee’s wage, deducting it, and paying it to IRD by the due date. The employer also pays a KiwiSaver contribution on top of your salary if you’re a member. Because the employer does the calculation, most people never file a tax return for their PAYE income.

PAYE obligations as an employer

If you hire staff, you must first register as an employer with IRD. From then on, your obligations as an employer are to deduct tax and the other pay deductions (ACC, KiwiSaver, student loan, child support) from every wage, and report them through payday filing — the employment information form your payroll software files each payday. The tax payments themselves are then due to IRD monthly (or twice-monthly for larger employers). Getting this wrong can attract interest and penalties, which is why most small businesses use payroll software or a bookkeeper.

How PAYE is calculated

PAYE is worked out by applying the income tax brackets to your earnings, adding the 1.75% ACC levy, and using your tax code to fine-tune the deduction. Because tax is progressive, only the income above each threshold is taxed at the higher rate — so a pay rise never lowers your take-home pay.

The PAYE process step by step

The New Zealand PAYE process starts when you complete a tax code declaration (the IR330 form) so your employer applies the correct tax. Each pay period, your employer works out the tax deductions on your wage or salary using your tax rate, takes the ACC earners’ levy, and makes any employer deductions for KiwiSaver, student loan or child support. What reaches your account is your take home pay. Over a year, your annual PAYE should match your tax bill, with tax credits like the Independent Earner Tax Credit (IETC) applied where you qualify. Holiday pay is taxed through PAYE in the same way, and your annual PAYE deductions appear in your IRD income summary.

Frequently asked questions

Are there PAYE implications for self-employed or contract workers?

Self-employed people and most contractors aren’t on PAYE; they pay income tax directly to IRD on their net profit, often as provisional tax.

Can PAYE deductions include student loan repayments?

Yes — if your tax code ends in SL, your employer deducts your 12% student loan repayment in the same pay run as PAYE.

Does PAYE cover KiwiSaver deductions?

KiwiSaver is deducted alongside PAYE by your employer, but it’s a separate contribution to your retirement account, not income tax.

How do I find my tax code?

Your tax code depends on whether the job is your main or secondary income and whether you have a student loan. IRD has a short online tax code finder, or use our secondary tax calculator for a second job.