Tax requirements for first time employers

There’s a lot to consider when you first employ staff, but if there’s one thing you must get right, it’s your tax obligations.

If you get it wrong, you could not only affect your employee’s welfare but incur penalties as well.

On this page:

• Becoming an employer
• Employer returns
• PAYE and other deductions
• FBT and ESCT
• Keeping records
• Failing to meet your obligations

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Becoming an employer

When you employ your first employee, you must register as an employer with  Inland Revenue. The easiest and quickest way to do this is by filling out an Employer Registration (IR334) form online. As you do so, you will be asked whether the staff member is an employee or a self-employed contractor, which is an important definition because both are treated differently when it comes to tax.

Find out more with Focus on employees and Focus on contractors.

Register as an employer with Inland Revenue.

When an employee starts working for you, they need to:

• fill out a Tax code declaration (IR330)
• complete a KiwiSaver deduction form (KS2) (if they’re a KiwiSaver member)
• supply a contributions holiday letter (if they're on a holiday from KiwiSaver contributions).

If the employee isn’t a KiwiSaver member, but is eligible to join, you will also have to give them a KiwiSaver employee information pack (KS3) and automatically enrol them in KiwiSaver.

Find out about KiwiSaver.

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Employer returns

All employers must file an EMS (Employer monthly schedule – IR348) with Inland Revenue each month, along with an EDF (Employer deductions form – IR345). By filing these returns, you are forwarding on all the deductions you make from your employee’s salary or wage. You will need to show their first day of employment in the first EMS you file.

Employers with gross annual ‘pay as you earn’ (PAYE) tax payments of $100,000 or more must file these returns online using Inland Revenue’s ir-file service, but it’s a good idea to do this anyway if your PAYE is under that threshold because it’s much quicker and simpler to complete.

Find out about ir-File with Inland Revenue.

Log in to Inland Revenue’s online services to file an EMS and EDF.

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PAYE and other deductions

There are a variety of deductions you may need to make from your employees’ salaries or wages, or certain payments you make to self-employed contractors.

PAYE

If you employ employees – as opposed to self-employed contractors – you must deduct PAYE from their salaries and wages, and record the deductions in your EMS and EDF returns. The level of payments is regulated by the employee’s tax code, which they declare when they fill out a Tax code declaration form (IR330).

If you have trouble calculating PAYE deductions, you can use Inland Revenue’s online PAYE/KiwiSaver calculator. Some employers choose to outsource their payroll obligations to a specific payroll service provider.

Find out more about PAYE and payroll.

KiwiSaver

KiwiSaver is a voluntary initiative that encourages participants to save a portion of each pay packet for retirement in an approved private investment scheme.

When it comes to your employees, you must deduct their employee contributions for their chosen KiwiSaver investment scheme from their salaries and wages, and add your own compulsory employer contributions as well.

You then need to forward both types of KiwiSaver contributions to Inland Revenue when you file your EMS and EDF returns. Inland Revenue then forwards the funds to the employee’s chosen KiwiSaver investment scheme provider.

Find out more about KiwiSaver.

Other deductions

In addition to PAYE and KiwiSaver, you may also have to deduct the following.

• Tax on certain payments to self employed contractors, depending on the industry
• Student loan repayments
• Child support payments
• Non-KiwiSaver superannuation fund contributions
• Payroll giving employee donations

Read about Other deductions you might need to make.

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FBT and ESCT

There are two specific taxes that may apply to the benefits you choose to give your employees outside of their salaries or wages.

Fringe benefit tax

Fringe benefit tax (FBT) is a tax on benefits or perks – such as the use of a company car – you provide employees either directly from your business or through a third-party provider. It can also apply to benefits you provide to other people who may not be employed by you directly but are associated with your business (e.g. a relative of an employee).

Find out more about Fringe benefit tax.

Employer superannuation contributions tax

Employer superannuation contribution tax (ESCT) is a tax on the contributions you make to an employee’s superannuation fund.

Find out more with Overview of tax and levies.

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Keeping records

As an employer, you must keep all your pay records on file in New Zealand for a minimum of seven years.

These records must include:

• wage book information
• PAYE payment receipts
• completed tax code declarations (IR330)
• any Inland Revenue correspondence requesting an employee tax code change.

Find out more about record keeping with Tax obligations and registrations for new businesses.

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Failing to meet your obligations

You could be liable for penalties and interest if you fail to meet your tax obligations as an employer. Penalties can arise from failing to make appropriate deductions from employee salaries and wages or schedular payments to self-employed contractors, and from failing to pay deductions to Inland Revenue.

Find out more about meeting your obligations as an employer with Inland Revenue.

Find out more about Employer deductions, Managing staff and Business tax & levies.