When an employee takes out a student loan with the government via StudyLink, repayments are generally required once they earn above the student loan repayment threshold or earn secondary income using a student loan tax code. Inland Revenue requires borrowers to add "SL" to their tax code when they have a student loan and earn salary or wages.
Getting the Tax Code Right
It is the employee’s obligation to inform you of their student loan status.
One of the most common reasons student loan deductions are incorrect is that the wrong tax code has been provided. If the employee has a student loan, make sure they have provided a tax code that includes the SL suffix.
They’ll provide one of the student loan tax codes below during their onboarding:
Main Tax Codes: M SL, ME SL
Secondary Tax Codes: SB SL, S SL, SH SL, ST SL, SA SL
Not sure which one to use? If your employee is uncertain about their code, you can point them toward the IRD Tax Code Finder. Alternatively, they can contact the IRD directly to confirm.
Checking Your Student Loan Balance
If an employee wants to check if they've finished paying off their loan, they can view their balance in their myIR account or contact IRD. If an employee believes too much or too little is being deducted, checking their student loan balance and tax code is a great first step in identifying the cause.
How Student Loan Deductions Work
As the employer, you are responsible for making student loan deductions based on the code provided.
Here is the breakdown:
Main Tax Codes: There is a repayment threshold of $24,128 per year (or $464 per week). Any earnings above this threshold are deducted at a flat rate of 12% ($0.12 for every $1).
Secondary Tax Codes: There is no threshold. All earnings are deducted at the flat rate of 12%.
When you're processing with PaySauce, all these calculations are handled automatically! provided the correct tax code has been supplied by the employee.
The "Two Jobs" Trap
A common question from employees is: "Why is my student loan being deducted from every dollar in my second job, but not my first?" In New Zealand, the repayment threshold ($24,128 per year) is only applied to their main job (where they use an M SL or ME SL code). Inland Revenue applies no repayment threshold to secondary employment income, so repayments are deducted from the first dollar earned.
If they take on a second job:
They must use a Secondary Tax Code (like S SL or SB SL).
No threshold applies to secondary income. This means 12% is deducted from the very first dollar they earn in that second job.
Why?
New Zealand student loans do not have a tax-free threshold. They have a student loan repayment threshold, which is a different concept. If both employers applied the threshold, the employee would likely end up with a big underpayment bill at the end of the year. Using a secondary tax code helps ensure the correct amount of student loan repayments is deducted throughout the year.
Troubleshooting Student Loan Deductions
If an employee thinks their student loan deductions are incorrect, the most common causes are:
Using a tax code that doesn't include the SL suffix.
Having multiple jobs and not understanding that secondary income is deducted from the first dollar earned.
Forgetting to update their tax code when their circumstances change.
Having an SLCIR deduction in place from a previous underpayment.
Continuing to use an SL tax code after the loan has been repaid.
If an employee is unsure whether their deductions are correct, they should check their myIR account or contact the IRD directly.
Additional Student Loan Deductions (SLCIR & SLBOR)
Sometimes, you might see these "extra" acronyms. Here’s what they mean:
SLBOR (Student Loan Borrower-Initiated Repayment): This is a voluntary deduction. An employee might request this if they want to pay off their loan faster than the standard 12% rate. To set this up, the employee must provide the request to you in writing, stating the amount or percentage they wish to add.
SLCIR (Student Loan Commissioner-Initiated Repayment): This is a compulsory deduction requested by the IRD. This usually happens if there has been an underpayment or a previous misuse of a tax code.
Important Note: In the case of an SLCIR, the IRD will notify both the employer and the employee in writing to explain the requirements. Both of these deductions need to be set up manually in your system. You can find our handy guide on setting up SLCIR & SLBOR deductions in PaySauce here.