Quick answer
PAYE and other employer deductions, such as KiwiSaver and student loan deductions, are taken from employees' pay and must be passed to IRD, usually by the 20th of the following month. Unpaid deductions attract a 10% penalty and a further 10% for each month they stay unpaid, reduced to 5% once you pay or set up an arrangement. IRD says non-payment can bring up to five years' imprisonment, and directors who decide not to pay can be prosecuted personally.
Key points
- PAYE is due by the 20th of the following month; large employers pay twice monthly.
- Unpaid employer deductions attract 10%, then 10% more for each further month unpaid.
- Paying or entering an instalment arrangement reduces the last 10% penalty to 5%.
- IRD warns that non-payment carries up to five years' imprisonment, and directors can be prosecuted.
- Due
- 20th of the following month
- Large employers
- 20th and 5th (16–31 Dec due 15 Jan)
- Penalty
- 10%, then 10% each further month
- Personal risk
- Director prosecution possible
If you can only clear one tax debt this month, make it PAYE. That’s not a sales line; it’s how IRD’s own rules are designed. Employer deductions carry the steepest penalties and the most personal risk for directors, and IRD has said publicly that it treats non-payment as a serious offence.
Why is PAYE treated so seriously?
Because it isn’t the business’s money. PAYE, KiwiSaver deductions, student loan deductions and similar amounts are taken out of your employees’ pay. Your staff have already “paid” that tax; the business is holding it until it passes it to IRD. Failing to pass it on looks, in IRD’s eyes, like keeping money that belongs to someone else.
IRD’s March 2026 media release was direct: “Making deductions and failing to pay them to Inland Revenue carries a maximum sentence of up to 5 years in prison,” and “the director of a company who decides that the company will not pay the deductions to Inland Revenue may be prosecuted for the company’s failure to pay” (IRD, 16 March 2026).
When is PAYE due?
Employment deductions are generally due by the 20th of the month after the payday. Employers whose gross annual PAYE and ESCT is more than $500,000 pay twice monthly: by the 20th of the same month for wages paid from the 1st to the 15th, and by the 5th of the following month for wages paid from the 16th to the month’s end. Connected businesses add their amounts together for this test. Deductions from wages paid between 16 and 31 December are due on 15 January (IRD).
How do PAYE penalties work?
They’re much steeper than for GST or income tax. IRD’s late payment penalties page explains that unpaid employment deductions attract a penalty of 10% of the overdue amount, and another 10% is added each month the amount stays unpaid. When you pay the amount or enter an instalment arrangement, the last 10% penalty given reduces to 5% (IRD).
Compare that with GST, which attracts 1% the day after the due date and 4% on day seven, with no monthly penalty. A few months of unpaid PAYE can add far more than the same amount of unpaid GST.
| PAYE and employer deductions | GST | |
|---|---|---|
| Initial penalty | 10% | 1%, then 4% on day seven |
| Ongoing penalty | 10% for each further month | None monthly |
| Reduction for acting | Last 10% cut to 5% | Penalties stop under an arrangement |
| Personal risk for directors | Prosecution possible | Generally lower |
PAYE behind? Clear it first. Start an urgent enquiry, with no credit check to enquire.
What should you do if PAYE is behind?
- Stop the gap growing. Pay this month’s deductions on time, even if older ones are still owing.
- Get the real figure from myIR for every month that’s behind.
- Act within the month. Paying or arranging reduces the latest penalty from 10% to 5%.
- Prioritise PAYE over other tax unless a legal deadline says otherwise.
- Look at funding if you can’t clear it from cash. Many businesses use a loan to clear PAYE and then arrange GST or income tax separately.
- Talk to your accountant and, if you’re a director with concerns about personal exposure, a lawyer.
How can a loan help with PAYE arrears?
A loan can pay the full PAYE balance in one go, which stops the monthly 10% penalties, removes the prosecution risk tied to ongoing non-payment, and protects staff relationships. Cash-flow options for trading businesses are typically $5,000 to $500,000; property-secured loans run from $20,000 to $5,000,000. For businesses with staff and steady takings, a cash-flow loan is often enough.
What about directors’ personal exposure?
PAYE is one of the main ways a director becomes personally exposed for a company’s tax. Liquidating the company doesn’t make that risk disappear. A director’s decisions about PAYE can be examined. Read director liability for IRD debt and our guide am I personally liable for my company’s tax debt?.
An illustrative example
Illustrative only. Not a real client and not an offer.
An Auckland cleaning company with 30 staff fell three months behind on PAYE and KiwiSaver deductions after losing a large contract, about $64,000 in total. Penalties were adding 10% each month. The directors kept current deductions paid, then used a cash-flow loan sized on their remaining contracts to clear the arrears within the month, which cut the latest penalty to 5%. Their GST debt went onto a separate six-month arrangement.
Why do businesses fall behind on PAYE in the first place?
Usually because wages feel non-negotiable and the deductions feel like they can wait. Payroll goes out on Friday; the PAYE isn’t due until the 20th of next month, and by then the money has gone on rent, stock or the next payroll. It happens most often when a business loses a big customer, takes on staff ahead of new work, or goes through a slow season with the same headcount.
The fix is structural: treat the deductions as already spent on the day you run payroll. Move the PAYE, KiwiSaver and student loan amounts into a separate account the same day, and pay IRD from there. If payroll plus deductions is more than the business can cover, that’s a sign to look at staffing, pricing or working capital now, before the arrears grow.
Does liquidation get rid of PAYE problems?
The company’s debt goes with the company, but the personal risk around PAYE decisions doesn’t automatically disappear. A liquidator will look at what happened, and IRD’s prosecution powers are about the decision not to pay. If you’re thinking about liquidation because of PAYE arrears, read before you liquidate first and get legal advice on your own position.
Clear PAYE before anything else
If your business has fallen behind on PAYE or other employer deductions, contact us today. There’s no credit check to enquire, your details aren’t handed to a list of other lenders, and a real person will call you promptly. Give us accurate figures for each month owing, plus any other tax debt, and we’ll tell you straight away whether funding can clear it.
Frequently asked questions
Am I personally liable for my company's unpaid PAYE?
PAYE is the company's obligation, but IRD says a director who decides the company won't pay the deductions may be prosecuted personally. Treat PAYE arrears as the most urgent tax debt.
When is PAYE due?
Generally by the 20th of the month after the payday. Employers with gross annual PAYE and ESCT over $500,000 pay twice monthly: by the 20th for wages paid on the 1st to 15th, and by the 5th of the next month for wages paid later in the month, with 16 to 31 December due on 15 January.
What penalties apply to unpaid PAYE?
A 10% penalty on the unpaid amount, and a further 10% for each month it stays unpaid. When you pay or enter an instalment arrangement, the last 10% penalty is reduced to 5%.
Can I get a loan to pay PAYE arrears?
Yes. Because of the penalties and personal risk, many businesses clear PAYE first with a loan and arrange the rest of their tax debt separately.
Does PAYE include KiwiSaver?
Employer deductions paid with PAYE include KiwiSaver employee deductions and employer contributions, student loan deductions and other amounts. They're all treated as employer deductions.
Official and reputable sources (checked October 2026)