You make PAYE deductions based on the tax code your employee has given you. You may have to make other deductions as well. You must make the required deductions from your employee’s income.
Making deductions
When you pay an employee their salary or wages, you need to make deductions for PAYE.
You may also need to make deductions for:
- child support
- student loan repayments
- KiwiSaver employee contributions
- KiwiSaver employer net contributions
- employer superannuation contribution tax (ESCT).
If we need you to deduct child support, we’ll tell you how much to deduct and when to start deducting. These deductions then need to be paid to us.
You must pay deductions to us
It is important that you meet your obligations as an employer. You must pay the deductions to us by each due date. You cannot use the money for anything else.
If you cannot pay PAYE, student loan, child support or KiwiSaver deductions, contact us right away. You must still file your employment information returns by the due dates.
If you do not make deductions
We’re here to help you to meet your responsibilities, but we will take enforcement action if you do not comply with the tax laws. Not paying the deductions to us is a serious offence and you could be prosecuted.
If you do not make the required deductions, you could be charged a shortfall penalty of up to 150% of the PAYE employer deductions. If you deliberately do not make deductions, in addition to the penalties, you could be fined up to $50,000, imprisoned for up to 5 years, or both. Company directors and officers can also be fined and prosecuted.
More information is on pages 75 and 76 of the Employer's guide - IR335.
Get the right employee tax code
The tax code your employee uses depends on their work type and situation. Employees need to give you a completed Tax code declaration - IR330.
If your employee does not give you a completed IR330, you need to deduct PAYE at the non-notified rate of 45% plus ACC earners’ levy. Use ND as the tax code on the Employment Information return and the PAYE calculator.
If we notice that one of your employees is using the wrong tax code, we’ll write to you. This letter will tell you what their code should be. You’ll need to start using the correct code and deduct tax based on that code.
If your employee thinks they are already on the correct tax code, please get them to call us. We will discuss their situation with them and let them know their correct tax code. If your employee’s tax code should be different, they will give you a new IR330. Use the tax code on the new IR330.
Child support and protected net earnings
If you’re deducting child support from an employee's pay, the maximum amount of child support you can deduct is 40% of their net earnings (after tax). This is called ‘protected net earnings’. Protected net earnings are usually only affected if you’re paying an employee less than their usual pay, for example, if they take unpaid leave.
Protected net earnings only apply to child support. You should still make other deductions in full, even if these add up to more than 40% of your employee’s pay.
More about protected net earnings is in the IR335 - Employer’s guide.
If the child support deduction we’ve asked you to make is more than 40% of your employee’s net pay, you should only deduct 40% of their net pay amount. We will arrange with your employee to pay the balance, so you do not need to make up the missing amount in future pays.
Child support codes
If the child support amount you deduct is different to the amount we asked for, we need to know why to make sure we update the liable parent’s account correctly. It’s important that you provide a variation code on the employment information form if one applies.
Employers and employees can work out how much PAYE should be withheld from wages.
Go to this tool