Taking on your first employee is a genuine milestone, it usually means the business has grown to the point where you can’t do it all yourself anymore. It also comes with a list of obligations that can feel like a lot to absorb all at once, especially if you’ve only ever dealt with your own tax return.

The good news is that none of it is complicated in isolation. Here’s what actually needs to happen, in the order you’ll typically need to do it.

Step 1: Confirm they’re actually an employee

Before anything else, it’s worth being clear on whether the person is an employee or a contractor, because the tax and compliance obligations are quite different. Inland Revenue’s guidance is that if you control how and when the work is done, pay them at a set rate, they work set hours at a place you specify, and they can’t send someone else to do the work in their place, they’re almost certainly your employee, not a contractor. It’s illegal to treat a genuine employee as self-employed to get around deducting tax, and if you get this wrong, you’ll still be liable for the PAYE you should have deducted, on top of possible penalties.

Step 2: Register as an employer with IRD

You must register as an employer with Inland Revenue before you start deducting and paying PAYE. You can do this in myIR, or by completing an Employer registration (IR334) form. This is a one-off step. Once you’re registered, you use the same registration for every employee you take on afterward.

Step 3: Get a written employment agreement and check minimum rights

Every employee in New Zealand must have a written employment agreement, and there are minimum rights that apply regardless of what you agree between you. Under current rules, every employee:

• must have an employment agreement in writing
• is entitled to 4 weeks’ paid annual holidays at the end of each year of employment
• if aged 16 or over, must be paid at least the applicable minimum wage, currently $23.95 an hour for adult employees (from 1 April 2026), or $19.16 an hour for starting-out and training wages
• is entitled to 11 public holidays off work on pay, if they normally work those days
• is entitled to 10 paid sick days after 6 months of employment.

As the employer, you’re required to keep accurate records of hours worked, payments, and leave entitlements, keep signed copies of employment agreements, take practical steps to keep employees safe, provide any necessary protective equipment, and confirm the person has the legal right to work in New Zealand.

Step 4: Get their tax code declaration before their first pay

Every new employee must complete a Tax code declaration (IR330) giving you their name, IRD number, and tax code. You need this before you can pay them correctly. If they don’t give you a completed IR330, you’re required to deduct tax at the non-notified rate of 46.75%, noticeably higher than most standard tax codes, until they provide one, so it’s worth chasing this up before their first payday rather than after.

Step 5: Understand what PAYE actually covers

PAYE (pay as you earn) is the income tax you deduct from an employee’s pay every time you pay them, before the money reaches their bank account. It already includes the ACC earners’ levy (currently 1.75%, up to a maximum of $156,641 of earnings for the year), so there’s no separate calculation needed for that. The amount you deduct depends on the tax code they’ve given you. IRD provides a free PAYE calculator and published tax tables to work this out. You don’t need to calculate the percentages by hand.

Step 6: Set up KiwiSaver

This is the step that trips up a lot of first-time employers, because there are different rules depending on the situation.

• New employees who are eligible generally need to be automatically enrolled in KiwiSaver, unless they opt out within a set window.
• Existing employees can choose to opt in if they want to.
• Each eligible employee should complete a KiwiSaver deduction form (KS2), choosing their contribution rate: 3.5%, 4%, 6%, 8%, or 10% of gross pay. If they don’t give you one, the default deduction rate applies.
• As the employer, you’re required to make a minimum employer contribution of 3.5% of the employee’s gross pay into their KiwiSaver scheme (or complying fund), on top of what you deduct from their pay.
• Employer contributions have Employer Superannuation Contribution Tax (ESCT) deducted before they reach the employee’s KiwiSaver account, the rate depends on the employee’s total annual income and is worked out at the start of each tax year.
• You’ll need to give IRD the employee’s KiwiSaver details, either in myIR or via a New Employee and KiwiSaver details (IR346K) form, before their first payday or when you file the pay information that includes it.

Step 7: File employment information every payday (payday filing)

Every time you pay your employees, you need to file employment information with IRD, not just once a month. If you file electronically, this is due within 2 working days of payday. Paper filing is only available if your total annual PAYE and ESCT is under $50,000, and gives you 10 working days instead. Most modern payroll software handles electronic filing automatically as part of running payroll.

You’ll also need to pay the PAYE, KiwiSaver, and other deductions you’ve withheld to IRD, generally monthly or twice-monthly depending on the size of your payroll.

Step 8: Keep proper records

You’re required to keep employment and wage records for at least 7 years, including salary and wage details, PAYE payment records, completed IR330 forms, and KiwiSaver forms. Good payroll software (rather than a spreadsheet you’re maintaining by hand) makes this dramatically easier to stay on top of, particularly once you have more than one or two employees.

A quick pre-hire checklist

• Confirm the person is genuinely an employee, not a contractor
• Register as an employer with IRD (if you haven’t already)
• Prepare a written employment agreement
• Confirm the pay rate meets at least minimum wage
• Get their completed IR330 before their first payday
• Set up KiwiSaver enrolment and get their KS2
• Choose payroll software or a payroll provider to handle PAYE calculations and payday filing
• Diarise your PAYE, KiwiSaver, and ESCT payment due dates

The bottom line

None of these steps are individually difficult, but there are a lot of small, easy-to-miss requirements packed into the first few weeks of having an employee, and IRD does cross-check the information you file, so mistakes with tax codes or KiwiSaver tend to surface eventually rather than quietly disappear. Getting the setup right from the first payday saves you from unwinding errors later, which is almost always more work than doing it correctly the first time.

If you’re about to take on your first employee and want a hand getting the payroll setup right from day one, get in touch. This is exactly the kind of thing worth a short conversation before your new hire’s first payday, not after.

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This article is general information only and doesn’t take into account your personal circumstances. Speak to us for advice specific to your situation.