Small Business Tax Dictionary
PAYE (Pay As You Earn) — NZ
PAYE (Pay As You Earn) is a withholding tax system in New Zealand where employers deduct income tax and other deductions directly from employees' wages or salaries.
How PAYE works in New Zealand
The PAYE system enables tax to be collected incrementally throughout the year rather than in lump sums at year end. When you pay an employee, you deduct the correct amount of tax based on their tax code and pay it directly to Inland Revenue (IRD).
Amounts deducted through PAYE typically include:
- Income tax — calculated based on the employee's earnings and tax code
- ACC earners' levy — a levy that funds New Zealand's accident compensation scheme
- Student loan repayments — if the employee has a student loan and has provided their tax code accordingly
- KiwiSaver contributions — the employee's elected contribution rate, plus the employer's 3% minimum contribution
Employer responsibilities
As an employer, you must:
- Calculate the correct deductions for each employee each pay period
- File employment information with IRD (payday filing)
- Pay deductions to IRD by the due date
Why PAYE compliance matters
Proper PAYE management supports three key outcomes: timely and accurate tax collection, employee financial stability, and regulatory adherence. Late or incorrect PAYE payments can result in penalties and interest charges from IRD.