When you become an employer, there are legal employment obligations to understand and comply with. One of these is ‘pay as you earn’ or PAYE. It’s the New Zealand government’s way of collecting income tax and Accident Compensation Corporation (ACC) earners’ levies from employees.
As an employer in New Zealand, you are obligated to:
- Keep wage records for at least seven years
- Deduct the right amount of PAYE from each employee’s pay every payday
- Deposit it into Inland Revenue’s bank account when due
- File monthly or twice monthly returns of your employees’ details with Inland Revenue
When you first employ people, you need to register as an employer with Inland Revenue. They’ll then send you information on all the above. In the meantime, here are some of the main points about PAYE to get you started.
A quick guide to calculating PAYE deductions
Inland Revenue provides useful tax tables and online calculators to help you work out how much PAYE you should deduct from each employee’s regular pay. The calculator lets you select a monthly, four-weekly, fortnightly or weekly pay cycle. However, it does not allow for extra payments, like bonuses, redundancy or schedular payments, for example, contractors – see below.
There are other online calculators available, as well as a range of payroll and accounting applications that can be useful if you have several employees.
When it comes to calculating the amount of PAYE to deduct from your employees pay, you will need:
- Their tax code
- Wage or salary details for the pay period
How to find my employee’s tax code
Your employees are responsible for working out their particular tax code and providing it to you.
- When you hire your employee, they need to give you a tax code declaration on Inland Revenues form IR330
- A contractor needs to provide you with a complete tax rate notification for contractors on Inland Revenue form IR330C
What are schedular payments?
These are payments you make to someone who is not your employee, but you employ on a contract-for-service basis, often known as contractors. Schedular payments also include commissions and company director fees. The standard tax rates for the main activities that quality for schedular payments is listed on the back of the Inland Revenue form IR330C. Most contractors can choose a different rate if they wish. The minimum tax rate a contractor can choose is:
- 15% for non-residents and temporary entry class visa holders
- 20% for other people
If you are paying someone to do these types of activities you must deduct tax from your payments to them, even if they are registered for GST. If they are GST registered, you must deduct tax on the amount paid excluding GST.
You don’t have to deduct tax from schedular payments if:
- The person gives you an IR331 certificate of exemption
- The type of work you are paying them to do is not listed on the back of the IR330C
- You are making the payment to a company who provided and employs the contractor, such as a labour hire company or temping agency
Voluntary schedular payment tax deductions
A contractor whose work activity doesn’t qualify for schedular payments can still ask you to make voluntary schedular payments and tax deductions. You don’t have to agree to make them. But if you do, the agreement needs to be in writing.
Inland Revenue recommends the agreement includes:
- The contractor’s name and yours
- That the agreement is for all payments you make to the contractor to be treated as voluntary schedular payments
- A start and end date for the agreement
- Both of your signatures
Schedular payment deductions don’t include ACC earners’ levies
PAYE deductions from schedular payments do not include an ACC earners’ levy. You also don’t need to deduct the likes of KiwiSaver and student loan payments. The contractor, or their employing agency, is responsible for those.
Check the latest version of Inland Revenue’s comprehensive employer’s guide – IR335 for more on schedular payments. Inland Revenue publishes a copy annually and you can download it from their website.
How to calculate PAYE on holiday pay
How you calculate PAYE on holiday pay depends on which payment option you choose. For example:
- If you keep an employee’s normal pay going while they are on leave, you can calculate the PAYE as you normally would
- If you pay holiday pay at 8% of annual income you can also treat it as salary or wages for the pay period
- If you pay holiday pay as a lump sum, such as when an employee cashes in their annual leave, you pay holiday pay in advance of them leaving your employment, the Inland Revenue website provides information on calculating PAYE for a lump sum payment.
How to calculate the ACC earners’ levy for PAYE
The ACC earners’ levy is charged at a flat rate, which is set annually. There’s also a maximum payable annual total. For the year ending 31 March 2022, the rate is $1.39 including GST per $100 earnings and the maximum earnings on which the earners’ levy is payable is $130,911.
Inland Revenue’s tables, guides and calculators typically include the ACC earners’ levy, but it pays to check before using them.
How to file PAYE information with Inland Revenue
Sending your PAYE information to Inland Revenue is known as payday filing. Every time you pay your employees you have to complete an employee information form. You do this online or using a paper form if your PAYE and employer superannuation contribution tax (ESCT) deductions are less than $50,000 each year. All new employees can file on paper for the first six months if they wish, but after that must switch to electronic if they exceed the annual threshold. Other options for filing include using payroll software or a payroll company. Both can take care of payroll tasks for you based on the information you provide.
What information do employers have to include in payday filing?
The PAYE information your file includes:
- Details for any new employees
- The pay period worked and the actual pay date for each employee
- What you paid each employee and what you deducted
You also have to let Inland Revenue know if you:
- Won’t be employing staff for a month or more
- Won’t be paying wages for a month or more
- Will employ people irregularly during the year
When is payday filing due?
This depends on who you file. If it’s:
- Electronically, it must be within two working days of each payday
- On paper it must be within 10 working days of each payday
How to file PAYE information online
You can do your payday filing through Inland Revenue’s online service, myIR. As your number of employees grows you could save a lot of time by using online payroll software instead. Many of these do your payday filing automatically by connecting directly to Inland Revenue.
What if you make a payday filing mistake?
Mistakes can happen and when they do the main thing is to correct them as soon as possible. You can do this in the same way you file your PAYE payday information, either online or on paper. Another option is to give Inland Revenue a call, let them know what happened and ask them to help you put it right. The worst thing you can do is ignore the mistake and hope no-one notices.
How to make PAYE deduction payments to Inland Revenue
You can pay Inland Revenue through internet banking, a debit or credit card, or a direct debit. You need to select the EMP tax type for employer deductions, which includes any combination of PAYE, KiwiSaver, student loan, child support and/or ESCT deductions made by the employer.
To learn more about paying Inland Revenue, visit www.ird.govt.nz/pay
When are employer PAYE deduction payments due?
Employers pay their PAYE deductions to Inland Revenue either monthly or twice a month depending on the total gross annual PAYE (including ESCT).
If it is less than $500,000 annually you must pay monthly and it’s due by the 20th of the month after the related paydays. For example, PAYE deducted from fortnightly employee paydays on 12 September and 26 September must be paid to Inland Revenue by 20 October.
If it was more than $500,000 in the previous year to 31 March, you must pay PAYE:
- From wages paid between the 1st and 15th of the month by the 20th of the same month
- From wages paid between the 16th and the end of the month by the 5th of the following month except for the second period of December, which is due on 15 January
What if my PAYE deductions are late?
If your payments are late, Inland Revenue will send you a reminder and may charge you interest. You may also have to pay penalties for late or non-payment. If you don’t pay wages in any period, it’s important to let Inland Revenue know, so they don’t charge late filing penalties.
Pay deductions other than PAYE
The purpose of this article is to provide an overview of an employer’s PAYE obligations. It’s important to realise that employers are responsible for other deductions, including:
- Student loan repayments
- Child support
- Payroll giving
- Employer’s superannuation cash contribution tax
The Inland Revenue website has information on your wider deduction obligations when employing staff.