PAYE, which stands for Pay As You Earn, is a system used in New Zealand and other countries where income tax is automatically deducted from an employee’s wages or salary by their employer. The employer is responsible for calculating the appropriate amount of tax based on the employee’s earnings and tax code, then forwarding it directly to the Inland Revenue Department (IRD) on behalf of the employee.
This system ensures that income tax is paid regularly and reduces the need for employees to make lump-sum tax payments at the end of the financial year. PAYE also covers other deductions like student loans and KiwiSaver contributions.