New Zealand operates a Pay As You Earn (PAYE) system for income tax, where employers are responsible for deducting tax directly from employee wages and salaries before they are paid. This system simplifies tax collection for Inland Revenue (IR) and ensures that most employees have their tax obligations met throughout the year. Employers play a crucial role in this process, handling not only income tax withholding but also contributions to schemes like KiwiSaver and levies such as the Accident Compensation Corporation (ACC) levy.
Understanding these obligations is essential for any employer operating in New Zealand to ensure compliance and avoid penalties. The tax year in New Zealand runs from 1 April to 31 March. The information provided here relates to the tax year ending 31 March 2025.
Employer Social Security and Payroll Tax Obligations
Employers in New Zealand have key obligations beyond simply paying wages. These primarily involve contributions to the Accident Compensation Corporation (ACC) and facilitating employee savings through KiwiSaver.
ACC is a no-fault comprehensive injury cover scheme. Employers pay an ACC employer levy based on their liable payroll and their industry classification, which reflects the risk associated with the work performed. Levy rates vary significantly across different industries. Employers are also responsible for deducting an ACC earner's levy from their employees' gross wages, which is then paid to IR along with PAYE.
KiwiSaver is a voluntary work-based savings initiative to help New Zealanders save for retirement. While employee participation is voluntary, employers are required to automatically enrol eligible new employees (though employees can opt out). If an employee is a KiwiSaver member and contributes a percentage of their gross pay, the employer is legally required to contribute a minimum of 3% of the employee's gross salary or wages towards their KiwiSaver account, in addition to the employee's pay. Employers must also deduct the employee's chosen contribution rate (3%, 4%, 6%, 8%, or 10%) from their pay and pass it on to IR.
Income Tax Withholding Requirements
Employers are responsible for calculating and deducting income tax (PAYE) from their employees' gross earnings each payday. The amount of PAYE to deduct depends on the employee's total earnings, their tax code, and the relevant tax rates. Employees provide their tax code to their employer, which indicates their personal tax circumstances, such as whether they have a student loan or are eligible for tax credits.
The income tax rates for the year ending 31 March 2025 are structured in brackets:
| 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 IR-provided tax rate tables or payroll software that incorporates these rates and the employee's tax code to accurately calculate the PAYE deduction for each pay period. The calculated PAYE, along with ACC earner's levy and KiwiSaver deductions and employer contributions, is then reported and paid to Inland Revenue.
Employee Tax Deductions and Allowances
While the PAYE system deducts tax at source, employees may be eligible for certain tax deductions or allowances that can affect their overall tax position, although most are handled outside the employer-employee relationship directly with IR.
Common situations that might affect an employee's tax include:
- Allowances: Payments made by an employer to an employee to cover specific costs incurred in the course of their employment (e.g., tool allowance, travel allowance). Whether these are taxable depends on the nature of the allowance and whether it genuinely reimburses expenses.
- Expenses: Employees cannot typically claim employment-related expenses against their salary income through their employer. Most deductions for work-related expenses must be claimed directly by the employee when filing their own income tax return (if required), and strict criteria apply.
- Tax Credits: Eligibility for certain tax credits (like the Independent Earner Tax Credit) is often factored into the employee's tax code, allowing the employer to adjust the PAYE deduction accordingly.
It is generally the employee's responsibility to ensure their tax code is correct and to manage any potential claims for deductions or eligibility for credits directly with Inland Revenue, often through their personal tax return process.
Tax Compliance and Reporting Deadlines
Employers in New Zealand are required to file employment information with Inland Revenue every payday using a system called payday filing. This means that for each pay run, employers must submit details of gross earnings, PAYE deductions, ACC earner's levies, and KiwiSaver contributions for all employees included in that pay.
The deadlines for submitting this information depend on the size of the employer's annual PAYE and ESCT (Employer Superannuation Contribution Tax) deductions:
- Large employers (annual PAYE/ESCT deductions of $50,000 or more): Employment information must be filed within 2 working days of the payday.
- Small employers (annual PAYE/ESCT deductions less than $50,000): Employment information must be filed within 10 working days of the payday.
Payment of the amounts deducted (PAYE, ACC earner's levy, employee KiwiSaver contributions) and the employer's KiwiSaver contributions and ESCT is due by the 20th of the month following the payday(s) in which the amounts were deducted/calculated. For example, for all paydays in April, the total PAYE, levies, and contributions are due by 20 May.
Accurate and timely filing and payment are critical to avoid penalties and interest charges from Inland Revenue.
Special Tax Considerations for Foreign Workers and Companies
Employing foreign workers or operating as a foreign company in New Zealand introduces additional tax considerations.
- Tax Residency: The tax obligations for foreign workers depend heavily on their tax residency status in New Zealand. Non-residents are generally only taxed on income earned in New Zealand, while residents are taxed on their worldwide income. Employers need to determine the correct tax code for non-resident employees, which may involve different withholding rates.
- Double Tax Agreements (DTAs): New Zealand has DTAs with many countries. These agreements can affect how income is taxed for individuals and companies from those countries, potentially providing relief from double taxation. Employers of foreign workers from DTA countries may need to consider the DTA provisions.
- Foreign Companies: A foreign company employing staff in New Zealand may establish a taxable presence (permanent establishment) depending on the nature and duration of its activities. If a permanent establishment exists, the foreign company may be liable for New Zealand income tax on the profits attributable to that presence, in addition to standard employer obligations like PAYE and KiwiSaver.
- Employer of Record (EOR): Foreign companies without a registered entity in New Zealand often use an Employer of Record service. The EOR acts as the legal employer in New Zealand, handling all local payroll, tax, and compliance obligations on behalf of the foreign company, simplifying the process and ensuring adherence to New Zealand law.
Navigating these complexities requires careful attention to New Zealand's tax legislation and potentially seeking professional advice, especially when dealing with non-resident status or the implications of double tax agreements.
