Painless Payroll Compliance
Income Tax (PAYE)
Every earning employee in New Zealand pays Pay As You Earn (PAYE) tax via a graduated bracket system. New employees must complete an IR330 form. Failing to do so requires employers to apply a penalty "no notification rate" of 46.39% across their entire taxable income.
PAYE tax applies to all individuals earning an income from an employer. The legal responsibility to accurately calculate, report and remit this tax to the IRD rests entirely on the employer.
New Zealand operates a graduated tax system, meaning there is no single flat rate for income tax. Instead, specific progressive tax rates are applied to designated taxable income ranges.
As an employee's earnings increase, they move into higher brackets, meaning a single employee's income is often taxed across several different rates simultaneously.
Based on standard individual tax thresholds, income is taxed using the following tier structure.
Flat Tax Rate
10.5%
17.5%
30%
33%
39%
What Counts as Taxable Income?
PAYE is not limited to base salary alone. Liable earnings subject to PAYE include:
Standard wages and salaries.
Overtime pay.
Any cash bonuses.
ACC earnings-related payments.
Taxable allowances.
The calculated value of providing board and lodgings.
IR330 Tax Code Declaration
Every employee must fill out an IR330 Tax Code Declaration when starting work. This form legally advises you on which tax code to implement.
If an employee fails to hand in a completed IR330, you must legally tax their entire income at the no notification rate of 46.39%.
If an employee's tax code changes later on (such as after paying off a student loan), IRD will formally notify the employer, who is legally required to update the payroll system immediately.
ACC Earners Levy
The ACC Earners Levy funds the cost of non-work-related injuries. It is collected automatically by the IRD on top of regular PAYE deductions and applies to almost all forms of employee compensation.
What Is The ACC Earners Levy?
The ACC Earners Levy is an automatic deduction designed to fund 24/7 injury coverage for non-work accidents.
The levy applies a percentage charge up to a maximum statutory earnings cap. From 1 April 2026 – 31 March 2027, the levy is 1.75% on all individual earnings up to $156,641.
How Is The ACC Earners Levy Collected?
To simplify administration, the IRD collects all earners' levies directly on the ACC's behalf by adding the levy percentage directly on top of your standard PAYE calculations.
What Is The ACC Earners Levy Paid On?
Almost all forms of employee compensation that are liable for PAYE are also subject to the ACC levy. This includes:
Standard wages and salaries.
Back pay.
Holiday pay.
Overtime hours.
Long-service payouts.
Bonuses.
Gratuities.
Taxable allowances.
Shareholder-employee salaries.
Salaries paid directly to partners within a partnership.
KiwiSaver Contributions
Employers must manage employee deductions (ranging from 3.5% to 10%), provide information packs, contribute a minimum 3.5% gross match and pay Employer Superannuation Contribution Tax (ESCT) on those employer matches.
Employer Oblibations
KiwiSaver requires strict administrative oversight. Employers face financial penalties if they fail to meet their compliance obligations.
When handling KiwiSaver, you must distribute information packs, manage employee deductions, handle employer matching, process opt-outs and calculate ESCT.
Using a KS2 form, employees declare whether they are already enrolled, note if they are on an active savings suspension and select their preferred contribution rate.
Contribution Rates
Employees can choose between five active contribution rates: 3.5%, 4%, 6%, 8%, or 10%.
The default enrollment rate is 3.5%, which matches the compulsory minimum employer contribution. If a worker chooses to save at a higher rate, the employer is under no legal obligation to match anything beyond the 3.5% baseline.
Defining Gross Pay for KiwiSaver
The selected savings rate is calculated directly against the worker's gross pay. Your payroll software should recognise what to include and exclude.
Included in KiwiSaver Gross Pay
Base wages/salary.
Allowances.
Cash bonuses.
Sales commissions.
Extra salary overtime.
Gratuities.
Other pre-tax remuneration (including parental leave or ACC payments).
Excluded from KiwiSaver Gross Pay
Redundancy compensation.
The value of providing board/lodging.
Corporate costs for overseas accommodation or living allowances.
Specific grants/pensions.
Free or discounted company shares.
Payments to a Voluntary Bonding scheme.
Calculation Order
KiwiSaver deductions are calculated against the gross earnings of the employee, just like PAYE. However, the actual deduction must be taken out of the pay packet after PAYE has been calculated.
Saving Suspensions
Employees who have been active members for 12 months or longer have a right to take a savings suspension lasting from 3 months up to 1 year.
Staff do not need to provide a reason, can take back-to-back suspensions indefinitely and will have their employer contributions stopped during this window unless their employment contract states otherwise.
Employers must physically sight the approved IRD suspension notice and retain a copy for their records before stopping deductions.
Employer Superannuation Contribution Tax (ESCT)
Whenever an employer makes a matching contribution to a KiwiSaver fund, they are legally liable to pay ESCT on those funds.
Employers must evaluate the worker's Relevant Remuneration (or Estimated Relevant Remuneration if they are a new hire) to identify their tax range.
$0 to $18,720
10.5%
$18,721 to $64,200
17.5%
$64,201 to $93,720
30%
$93,721 - $216,000
33%
$216,001 and over
39%
Child Support Payments
When issued a CS503 Child Support Notice by the IRD, employers are legally required to deduct child support from an employee’s wages. These deductions hold absolute priority over all other deductions except PAYE tax.
Employer Oblibations
Employers have a strict legal obligation to act on child support deduction directives sent by the IRD. You must sustain these deductions until explicitly instructed otherwise by the department.
Managers must completely safeguard the employee's right to privacy and ensure protection from any form of discrimination regarding child support matters.
Process For Deducting Child Support
When a Child Support Notice (CS503) arrives, the specific deduction amount stated may vary based on what the employee earns. IRD may dynamically reassess this figure when earnings change.
These payments are due to the IRD on the 20th of each month (or the 5th and 20th for larger employers).
To prevent financial hardship, child support deductions are legally capped at a maximum of 40% of the employee's net earnings.
Deductions Priority Rankings
Child support orders hold absolute legal priority over almost all other voluntary or statutory payroll deductions. The priority order requires child support to be extracted before:
Student loan repayments.
KiwiSaver contributions.
Private insurance or union fees.
Student Loans
Employers are required to deduct standard student loan repayments from the wages of any employee who has a repayment obligation once they enter the workforce.
Student loan deductions are fixed at 12% of each dollar earned above the statutory repayment threshold. This rate is applied universally across primary and secondary income streams.
The baseline repayment threshold changes over progressive financial years. It is currently set at $24,128 per year (which translates to a threshold period breakdown of $464 per week).
Frequently Asked Questions
What happens if a new hire fails to complete their IR330 form?
The employer is legally required to apply the "no notification rate," taxing the employee's entire taxable income at a flat 46.39%.
Are performance bonuses exempt from income tax deductions?
No. Any regular or one-off bonuses, overtime pay, and taxable allowances are fully subject to standard PAYE tax calculations.
Is back pay or holiday pay exempt from the ACC Earners Levy?
No. Both back pay and holiday pay are fully liable components and must have the ACC Earners Levy deducted.
How is the ACC Earners Levy collected from businesses?
The IRD acts as the collection agent, combining the ACC Earners Levy directly on top of regular employee PAYE deductions.
Do I have to match an employee's 8% kiwi contribution?
No. Employers are only legally required to provide the compulsory minimum contribution rate of 3.5%.
Can employees stop KiwiSaver by asking their manager?
No. The employer must formally sight an official, approved savings suspension notice from the IRD before halting deductions.
Are student loans or child support deducted first?
Child support holds legal priority over all forms of deductions except PAYE, meaning it must be extracted before student loans and KiwiSaver.
Is there a limit on how much child support can be deducted?
Yes. Deductions are strictly capped at a maximum of 40% of the employee's total net earnings.
Does an employee's pay for their student loan on secondary income?
Yes. The 12% student loan deduction rate applies to both primary and secondary income sources.
What is the weekly income threshold for student loans?
Under the framework established on 1 April 2024, deductions trigger on weekly earnings exceeding $464. There is no threshold on secondary income. The 12% rate applies to the full secondary income.