New Zealand operates a Pay As You Earn (PAYE) system for taxing employee income. Employers are responsible for deducting income tax, employee contributions to KiwiSaver (a retirement savings scheme), and student loan repayments directly from employee wages or salaries before they are paid. These deductions, along with employer contributions to KiwiSaver and ACC levies, must be paid to Inland Revenue (IR) on a regular basis.
Understanding these obligations is crucial for businesses employing staff in New Zealand to ensure compliance, avoid penalties, and manage payroll effectively. The system is designed to collect tax throughout the year, simplifying the process for employees and ensuring a steady revenue stream for the government.
Employer Social Security and Payroll Tax Obligations
Employers in New Zealand have specific obligations beyond simply paying wages. These primarily involve contributions to the Accident Compensation Corporation (ACC) and, for eligible employees, contributions to the KiwiSaver scheme.
ACC is New Zealand's no-fault accidental injury cover system. Employers pay an employer levy based on their industry classification and the level of risk associated with that industry. This levy contributes to the cost of injuries that occur in the workplace. There is also an earner levy deducted from employee wages, which contributes to cover for injuries that happen outside of work. Employer levy rates vary significantly by industry.
KiwiSaver is a voluntary work-based savings initiative. While employee participation is voluntary, employers are generally required to make compulsory contributions for eligible employees who are contributing to KiwiSaver. The standard compulsory employer contribution rate is 3% of the employee's gross pay. Employers can choose to contribute at a higher rate. These contributions are subject to Employer Superannuation Contribution Tax (ESCT).
Income Tax Withholding Requirements
Employers are required to withhold income tax from employee wages and salaries under the PAYE system. The amount of tax withheld depends on the employee's income level and their tax code. Employees provide their tax code (e.g., M, ME, SB, S) to their employer, which indicates their tax situation, including eligibility for tax credits.
PAYE is calculated based on the employee's gross earnings for the pay period (weekly, fortnightly, monthly, etc.). The tax rates are progressive, meaning higher income is taxed at higher rates. For the income year commencing 1 April 2024 (relevant for the 2025 calendar year), the income tax rates for individuals are:
| Annual Income | Tax Rate |
|---|---|
| Up to $14,000 | 10.5% |
| $14,001 to $48,000 | 17.5% |
| $48,001 to $70,000 | 30% |
| $70,001 to $180,000 | 33% |
| Over $180,000 | 39% |
Employers use tax tables or payroll software provided by Inland Revenue to calculate the correct amount of PAYE to deduct based on the employee's pay frequency and tax code.
Employee Tax Deductions and Allowances
While the PAYE system withholds tax throughout the year, employees may be eligible for certain tax deductions or credits that can reduce their overall tax liability. These are generally claimed by the employee when filing their personal income tax return (IR3) at the end of the tax year, rather than affecting the regular PAYE deductions.
Common examples include:
- Donations: Employees can claim a tax credit for eligible cash donations of $5 or more to approved donee organisations. This is typically claimed via myIR or an IR3 return.
- Tax Credits: Certain tax credits, such as the Independent Earner Tax Credit (IETC), may be available depending on the employee's income and tax code. The IETC is generally factored into the PAYE calculation if the correct tax code is used.
- Allowable Deductions: In limited circumstances, employees may be able to claim deductions for work-related expenses, although the scope for this is generally narrow under New Zealand tax law compared to some other jurisdictions.
Allowances paid to employees (e.g., for tools, travel, accommodation) may be taxable or non-taxable depending on their nature and whether they genuinely reimburse expenses incurred by the employee in the course of their employment. Employers must determine the taxability of allowances when calculating gross pay for PAYE purposes.
Tax Compliance and Reporting Deadlines
Employers are required to file employment information and pay the amounts withheld (PAYE, KiwiSaver, student loans) and employer contributions (KiwiSaver, ESCT, ACC) to Inland Revenue regularly.
The frequency of filing and payment depends on the employer's total PAYE and ESCT deductions in the previous tax year:
- Monthly Filers: If the total deductions were less than $50,000, employers file and pay monthly. The due date is the 20th of the following month.
- Twice-Monthly Filers: If the total deductions were $50,000 or more, employers file and pay twice a month. The first period is from the 1st to the 15th of the month, due on the 5th of the following month. The second period is from the 16th to the end of the month, due on the 20th of the following month.
Employment information (details of employees' pay and deductions) must be filed electronically with Inland Revenue. Accurate and timely filing and payment are essential to avoid penalties and interest.
Special Tax Considerations for Foreign Workers and Companies
Employing foreign workers or operating as a foreign company in New Zealand introduces additional tax considerations.
Foreign Workers: The tax obligations for foreign workers in New Zealand depend primarily on their tax residency status.
- New Zealand Tax Residents: Generally taxed on their worldwide income. PAYE applies as for domestic employees.
- Non-Resident Taxpayers: Generally only taxed on income earned in New Zealand. PAYE applies to their New Zealand-sourced employment income. Specific tax codes may apply (e.g., NSW for non-resident). Double Tax Agreements (DTAs) between New Zealand and other countries can affect the tax treatment of foreign workers, potentially providing exemptions or reduced rates depending on the worker's home country and the duration of their stay.
Foreign Companies: If a foreign company employs staff in New Zealand, it may establish a taxable presence (permanent establishment) in New Zealand, triggering New Zealand corporate tax obligations. Even without a permanent establishment, the foreign company is considered an employer in New Zealand and must comply with all New Zealand employment and tax laws, including PAYE, KiwiSaver, and ACC obligations for its New Zealand-based employees. Utilizing an Employer of Record can help foreign companies manage these complex local compliance requirements without needing to establish a local entity.
