What Is PAYE?
PAYE stands for Pay As You Earn. It is the system under which your New Zealand employer withholds tax from every payment of salary or wages and sends it to Inland Revenue on your behalf. A PAYE deduction covers two things: income tax, and the 1.75% ACC earners' levy.
What a PAYE deduction contains
Two components, always, and only these two:
- Income tax on the pay, charged on a progressive scale so that each portion of your income is taxed at the rate for its band. The bands are published on the tax brackets page.
- The ACC earners' levy, 1.75% of your earnings, capped once earnings reach $156,641 in the tax year. It funds cover for injuries that happen outside work. It is a levy rather than a tax, but it is collected inside the same deduction, which is why the PAYE figure on your payslip is always higher than income tax alone.
Inland Revenue's own PAYE deduction tables publish the two combined, which is why almost nobody sees them separated. The combined PAYE rate table sets out what that looks like band by band.
What PAYE is not
- Not your employer's tax.It is your money. Your employer is the collector, not the taxpayer. The employer's own contribution to the arrangement is the compulsory 3.5% KiwiSaver contribution and the ESCT charged on it.
- Not your KiwiSaver or student loan deduction. Those come out of the same pay and are filed on the same return each payday, but they are separate deductions with separate rules. KiwiSaver at 3.5% by default, student loan at 12% above $24,128 a year.
- Not a final tax.PAYE is an estimate made one pay period at a time. Inland Revenue compares the year's withholding against the tax genuinely due after 31 March, and either refunds the difference or asks for it.
- Not provisional tax. Provisional tax is paid in instalments by people whose income does not have tax withheld at source. If all your income is salary or wages, you have no provisional tax.
- Not GST. GST is a tax on the supply of goods and services, charged by a registered business on what it sells. It has no connection to payroll.
PAYE, income tax and provisional tax told apart
| What it is | Who deducts or pays it | When | |
|---|---|---|---|
| PAYE | A withholding mechanism covering income tax and the ACC earners' levy | Your employer, from your gross pay | Every payday |
| Income tax | The tax itself, charged on your income for the year | You, through PAYE or directly | Assessed after 31 March |
| Provisional tax | Instalments toward income tax on income with no tax withheld at source | You, direct to Inland Revenue | Usually three instalments in the year |
| Withholding tax on schedular payments | A flat deduction from contractor payments, no levy and no loan repayment | The payer, under tax code WT | Each payment |
The distinction that matters in practice: PAYE is a collection method, income tax is a liability. You can have income tax to pay with no PAYE, and you can have PAYE deducted and still get a refund.
Who operates PAYE, and when it reaches Inland Revenue
Your employer runs the whole process. They hold your tax code declaration, calculate the deduction each pay period, withhold it, file the details and then pay the money across. The information and the money travel on different timetables, which surprises most people.
| Step | Employer size | Deadline |
|---|---|---|
| Filing employment information | Filing electronically | Within 2 working days of payday |
| Filing employment information | Filing on paper, permitted only under $50,000 of gross annual PAYE, or with an exemption | Within 10 working days of payday |
| Paying the money | Annual PAYE and ESCT under $500,000 | 20th of the following month |
| Paying the money | Annual PAYE and ESCT of $500,000 or more | 20th of the same month for pay dated 1st to 15th, and the 5th of the following month for pay dated 16th to month end |
One exception to the last row. Pay dated 16 to 31 December is not due until 15 January.
Who is on PAYE, and who is not
PAYE follows the employment relationship, not the industry or the job title.
- Employees. Permanent, fixed-term, casual, part-time, full-time. All on PAYE, all from the first dollar of the first pay.
- People receiving taxable payments that are not wages. New Zealand Superannuation, a taxable benefit and ACC weekly compensation all have PAYE deducted, and all need a tax code.
- Contractors. Not on PAYE. Some have withholding tax deducted from schedular payments under tax code WT, at a rate they elect themselves.
- The self-employed. No PAYE at all. Income tax is settled through an annual return, with provisional tax instalments during the year once the bill is large enough.
PAYE is worked out one pay period at a time
Payroll never knows what you will earn for the year. It treats each pay period as though it were typical of the whole year, taxes it on that basis, and moves on. That single design choice explains most of what looks odd on a payslip: why a bonus is taxed heavily, why part-year work produces a refund, and why the year-end square-up exists at all. The mechanism is set out on how PAYE is calculated, and the consequences on why your take-home pay changed.
The tax year PAYE is measured against
New Zealand's tax year runs from 1 April 2026 to 31 March 2027. Every annual figure in the PAYE system is anchored to it: the tax bands, the $156,641 ACC earnings cap, the $24,128 student loan threshold. After 31 March, Inland Revenue totals what you earned and what was withheld, and issues an income tax assessment. More on the tax year and the square-up.
Common questions
What does PAYE stand for?
Pay As You Earn. Your employer withholds tax from each payment of salary or wages and sends it to Inland Revenue, rather than paying you the full amount and leaving you with a bill after 31 March.
Is PAYE the same as income tax?
Not quite. PAYE is the method, income tax is one of the things it collects. A New Zealand PAYE deduction contains income tax and the 1.75% ACC earners' levy, which is a levy rather than a tax, so the two words are not interchangeable.
Who pays PAYE, me or my employer?
You do. It is your money, taken from your gross pay before you receive it. Your employer is the collector, legally responsible for calculating it, withholding it and paying it on time, but the liability is yours. The employer's own money in the arrangement is the compulsory KiwiSaver contribution and the ESCT on it.
When does my PAYE actually reach Inland Revenue?
The information goes within two working days of each payday for electronic filers. The money follows separately. By the 20th of the following month for employers whose annual PAYE and ESCT is under $500,000, and twice a month for larger employers.
Do contractors pay PAYE in New Zealand?
No. A contractor invoices for the work and is not on payroll. Some have withholding tax deducted from schedular payments under tax code WT instead, but that deduction contains no ACC earners' levy, no KiwiSaver and no student loan repayment, and the contractor settles the rest through their own return.
Does PAYE include KiwiSaver and student loan deductions?
Strictly, no. PAYE is income tax plus the ACC earners' levy. KiwiSaver and student loan deductions are separate, with their own rates and their own rules. They travel on the same payday return, which is why people use PAYE loosely to mean everything withheld. On a payslip they are always distinct lines.
Where these figures come from
- IRD. Tax rates for individuals
- IRD. ACC earners' levy rates
- IRD. Payroll calculations and business rules specification
2026–27 tax year (1 April 2026 – 31 March 2027). Last verified 30 July 2026.
Related
- how PAYE is calculatedThe method, step by step, with the arithmetic
- how to read a New Zealand payslipWhere PAYE sits, and what surrounds it
- New Zealand PAYE tax ratesIncome tax and the ACC levy as one rate
- New Zealand tax codesWhat tells payroll which method to use
- the New Zealand tax year1 April to 31 March, and the square-up
- take-home pay calculatorWhat PAYE leaves you with