PAYE (Pay As You Earn) is New Zealand's system for collecting income tax from employees. As an employer, understanding PAYE and tax codes is essential for staying compliant with IRD requirements and correctly paying your casual staff.
What is PAYE?
PAYE stands for "Pay As You Earn" and is the method the Inland Revenue Department (IRD) uses to collect income tax throughout the year.
How PAYE Works
- You deduct tax from employee wages before paying them
- The amount depends on their tax code and earnings
- You must pay deducted PAYE to IRD by the 20th of each month
- You file an Employer Monthly Schedule (EMS) showing all deductions
Understanding Tax Codes
Every employee must provide you with a tax code. This determines how much PAYE you deduct from their wages.
Common Tax Codes for Casual Employees
| Tax Code | When to Use | Tax Rate |
|---|---|---|
| M | Main job, annual income under $48,000 | 10.5% - 39% (progressive) |
| ME | Main job, annual income $48,000 - $70,000 | 17.5% - 39% (progressive) |
| AE | Main job, annual income $70,000 - $180,000 | 30% - 39% (progressive) |
| S | Secondary job or multiple income sources | Flat deduction based on PAYE tables |
| SH | Secondary job, higher tax rate | 33% flat rate |
| ST | Secondary job, top tax rate | 39% flat rate |
| SL | Has a student loan to repay | M/ME rate + 12% student loan deduction |
PAYE Tax Rates 2025-2026
New Zealand uses progressive tax rates. This means different portions of income are taxed at different rates:
| Annual Income | Tax Rate |
|---|---|
| Up to $15,600 | 10.5% |
| $15,601 - $53,500 | 17.5% |
| $53,501 - $78,100 | 30% |
| $78,101 - $180,000 | 33% |
| Over $180,000 | 39% |
ACC Earner Levy
In addition to PAYE, you must deduct the ACC Earner Levy from employee wages:
- Rate for 2025-2026: 1.53% of gross earnings
- Maximum earnings: Capped at $142,283 per year
- Paid to IRD: Along with PAYE by the 20th of each month
You also pay an ACC Work Levy based on your industry. This is separate from the employee's earner levy.
Student Loan Deductions
If an employee has a student loan, you must deduct 12% of their gross earnings above the repayment threshold.
Key Points
- Repayment threshold 2025: $24,128 per year ($464/week)
- Deduction rate: 12% of earnings above threshold
- Tax code: Employee uses "SL" tax code
- Payment: Deductions paid to IRD with PAYE
Independent Earner Tax Credit (IETC)
The IETC is an automatic tax credit for low to middle-income earners who don't receive benefits or Working for Families.
Eligibility
- Annual income between $24,000 - $48,000
- Not receiving benefits or Working for Families Tax Credits
- Maximum credit: $520 per year ($10/week)
Go Casual automatically applies IETC when processing payroll for eligible employees.
How to Calculate PAYE
Calculating PAYE manually involves:
- Determine gross wages for the pay period
- Find the appropriate tax code
- Look up the PAYE tables from IRD
- Calculate tax based on earnings and tax code
- Deduct ACC earner levy (1.53%)
- Add student loan deductions if applicable (12%)
- Subtract total deductions from gross pay = net pay
Paying PAYE to IRD
Payment Deadlines
- Monthly: 20th of the month following the pay period
- Example: Wages paid in November → PAYE due by 20 December
- Late payments: Incur penalties and interest charges
How to Pay
- Log in to myIR
- Select "Accounts" then "Make a Payment"
- Choose "Employer Deductions (PAYE, KiwiSaver, etc.)"
- Enter total amount and confirm payment
You can also set up automatic payments or use internet banking with your IRD payment reference number.
Common PAYE Mistakes to Avoid
1. Using the Wrong Tax Code
Always get a signed IR330 form from employees. Don't guess their tax code.
2. Missing the Payment Deadline
Late PAYE payments incur 1% penalty immediately, plus interest charges.
3. Not Including ACC Levies
Remember to add 1.53% ACC earner levy on top of PAYE calculations.
4. Forgetting Student Loans
If an employee has an SL tax code, you must deduct 12% above the threshold.
5. Incorrect Filing
Your EMS (Employer Monthly Schedule) must match your actual payments. Discrepancies trigger IRD audits.
Official IRD Resources
- IRD PAYE Calculator - Calculate PAYE online
- IR330 Tax Code Declaration - Official form for employees
- PAYE Tax Tables - Weekly, fortnightly, and monthly rates
- Deduction Codes Guide - Special deduction codes explained