Are your staff getting tax bills at year end?

Lately I have been hearing of a large number of employees ending up with tax bills at the end of the financial year. Employees will end up with a tax bill if they have not had enough tax deducted from their income throughout the income year to meet their tax obligations.

Unexpected tax bills can be really trying, affecting the health of your teams, placing stress on their finances, and can create friction at work.

There can be a number of reasons why employees end up with unexpected tax bills and here are five reasons below.

  1. More than 52 weeks or 26 fortnights of pays in the year

If there are more than the standard number of payroll periods in a year, then the tax will have been underpaid.  This happens when there may be a pay date early April, then an extra one paid before 31 March.  As there are more than exactly 52 weeks in a year, this doesn’t happen very often.

  1. Wrong tax code used

If the employee is using the wrong tax code then this will create issues with the correct amount of tax being paid.

  1. Employee changed jobs during the year

If the employee has changed jobs during the year, this could result in a tax bill.

  1. Wrong investment rate

If the employee is using the wrong rates on their Kiwisaver or investment income then this could result in tax being underpaid.

  1. Employers taxing extra pays incorrectly

The most common reason why employees get tax bills is due to extra pays not being taxed correctly.   Unfortunately, most employers rely on the software to do it for them, and without understanding how extra pays are taxed, they cant check that the software has been set up correctly.

If a staff member gets a monthly bonus and gets paid weekly, then the employees income needs to be annualised to determine what tax rate should be used for that bonus.   If this is not done correctly, then it could be taxed at the wrong rate, causing a significant underpayment of tax for the year.


Employers are responsible for ensuring their staff are paid correctly.  Understanding and knowing the nuances with how to pay your staff correctly so they are not inexplicably hit with a tax bill at the end of the year is a very detailed undertaking and we have listed just five reasons above.

Because we know that organisations or companies really need to be on top of how to pay their staff correctly, we have developed the Payroll Essentials training course.  How to tax your staff correctly is just one of 40 topics that we cover in depth inside the next Small Business Training Hub Payroll Essentials training course starting in the second week of August.

If you know that there is more for you to learn about payroll or there are specific areas that you or your payroll team struggle with, this course will clear everything up and give you all tools you need to effectively manage your payroll and get it right.  If you want to read more information or to register for the next intake check out our website page.

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