If you operate as a sole trader or partnership, you must inform Inland Revenue if you employ your spouse or de facto partner. This is necessary to claim a deduction for the wages paid to them.
Fact: Everyone you employ needs a written employment agreement
You are legally required to do this, and it establishes a solid foundation for an employment relationship.
If your business is a registered company
As an employer, you have the same tax and employment obligations to your spouse or partner as you do to any other employee. This means you must:
- Have a signed employment agreement
- Provide minimum employment rights, including leave, minimum wage, and regular breaks
- Pay ACC levies for them
- Deduct PAYE
- Make contributions to their KiwiSaver
Minimum rights of employees — Employment New Zealand
Case study: Extra pair of hands
Tony runs a bakery next to an industrial area in Auckland. When a new tyre factory opens nearby, his sales double. To keep up with demand, Tony’s wife Carol helps serve customers during the lunch rush. After a week, Tony realizes he’s making enough money to pay Carol a wage for her hours at the bakery.
The next month, Tony’s accountant calls, asking about the increased wage bill. When he learns about Carol, the accountant informs Tony that everything must be compliant with regulations.
Carol must receive the same employment and tax benefits and obligations as other employees, including a signed employment agreement. Fortunately, Tony has already been deducting PAYE from Carol’s wages, so he can provide his accountant with the correct figures for the month’s employee schedule.
Tony also needs Inland Revenue’s (IR) approval to claim Carol’s wages as a business expense on his tax return. He must contact IR with sufficient information to demonstrate that her wages are genuinely paid for work done for his business.
While it’s a bit of a hassle, Tony is relieved that he won’t face penalties from IR in the future.
If you’re a sole trader or operating in a partnership
You must get approval from Inland Revenue to pay wages to your spouse or partner; otherwise, you cannot claim a deduction for these wages in your business accounts.
You need to inform Inland Revenue about:
- The type of business your spouse or partner will be employed in
- The work they’ll do for you
- The average number of hours they’ll work each week and the number of weeks per year
- How you’ll pay your partner
- How much they’ll be paid
- Details of your other employees, including the total amount you pay them
If you increase your spouse’s or partner’s wages for any reason other than a standard pay rise, such as increased duties or hours, you must make another application to Inland Revenue.
Further information is available in the IR335 Employers’ Guide section on the Inland Revenue website.
Deductions from salary and wages (IR335)) — Inland Revenue
Benefits and obligations
Your partner has the same benefits and obligations as any other employee.
For detailed information about employment rights and responsibilities, visit the Employment New Zealand website.
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