Answer
The tax code controls how PAYE is calculated for an employee. The right code depends on whether this job is the employee's primary or secondary income, whether they have a student loan, and any special circumstances. The employee chooses their code on an IR330 and gives it to you before their first pay.
Primary Income Codes
- M: the most common code — main income, standard tax rate.
- ME: main income where the employee is eligible for the Independent Earner Tax Credit (IETC).
Secondary Income Codes
Use a secondary code when this Lightning Payroll job is not the employee's primary income. The right code depends on the employee's expected total annual income from all sources, not just what they earn here.
- SB: total annual income up to $15,600.
- S: total annual income $15,601 to $53,500.
- SH: total annual income $53,501 to $78,100.
- ST: total annual income $78,101 to $180,000.
- SA: total annual income over $180,000.
The thresholds are set by Inland Revenue. The current bands are listed on the IR330 the employee provides. Lightning Payroll applies the flat secondary rate for the chosen band to every pay — the rate does not vary based on individual pay amounts, because the band is set against total income across all jobs.
Special Codes
- ND: non-declaration — used when the employee has not supplied an IRD number. Tax is deducted at the highest rate.
- STC: special tax code — the employee holds a certificate from Inland Revenue specifying a tailored rate.
- WT: withholding tax for schedular payments to contractors. To set an elected withholding rate for a WT worker, see How Do I Set A WT Employee's Elected Withholding Rate?
- CAE: casual agricultural employee.
- EDW: election day worker.
- NSW: recognised seasonal worker (non-resident, Pacific countries).
How To Set The Tax Code
In the desktop app: open the employee, go to Tax Rates >> Tax Settings, and find the NZ PAYE Settings section. Pick the correct code from the Tax code list. If the employee has a student loan, tick Has student loan (do not type an “SL” suffix into the code — Lightning Payroll adds it automatically). Note that WT and NSW codes cannot carry a student loan deduction. Save the employee.
In the online (web/mobile) app: open the employee, go to the Tax section, then Tax Settings. Under the NZ fields, select the code from the Tax Code drop-down. Tick Has student loan if applicable. For an ND employee (no IRD number provided), tick No declaration (ND). Save changes.
Things To Check
- The employee should provide a signed IR330 confirming the code they have chosen. Keep a copy on file in case Inland Revenue queries the deduction.
- If the employee changes their code mid-year, update it from the next pay so retrospective adjustments are not needed.
- For an STC employee, set the rate as specified on the Inland Revenue certificate.
- Casual and second-job employees commonly use a secondary code, but confirm with the employee before selecting one.
See also: Why Does Employee Details Say At Least One Tax Code Is Required?
