Employers
Changes to the employer superannuation contribution tax (ESCT) exemption from 1 April 2012
ESCT (employer superannuation contribution tax) is tax deducted from employers' cash contributions to KiwiSaver schemes, complying funds and other superannuation funds.
The 2% exemption from ESCT is to be removed. From 1 April 2012, if you're contributing to a KiwiSaver scheme or a complying fund, all your contributions will be liable for ESCT.
ESCT threshold amounts and ESCT rates
From 1 April 2012, you must calculate ESCT at the ESCT threshold amount set out in the table below. You won’t be able to use the 33% flat rate option unless you’re paying employer contributions into a defined benefit fund.
| ESCT threshold amount | ESCT rate |
|---|---|
| $0 - $16,800 | 0.105 (10.5%) |
| $16,801 - $57,600 | 0.175 (17.5%) |
| $57,601 - $84,000 | 0.300 (30%) |
| $84,001 and above | 0.330 (33%) |
If you prefer, you can treat your employer contribution as salary or wages and tax your employee (with their agreement) under the PAYE rules.
Selecting the right ESCT rate
The ESCT threshold amount is the total of the employee’s gross salary or wages, plus any superannuation contribution paid by the employer (before ESCT is deducted) to KiwiSaver or any other superannuation fund in the previous standard tax year (1 April to 31 March).
There are two ways to calculate the ESCT threshold amount depending on the whether the employee was employed by the employer for the full twelve months of the previous tax year:
- where the employee was employed for all of that year, the annual salary or wages plus gross employer cash contributions paid to the employee in the previous standard tax year, or
- where the employee was not employed for all of the previous tax year, an estimate of the total amount of salary or wages plus gross employer cash contributions that the employee will earn in the year ahead.
Examples showing how to work out the ESCT threshold amount and ESCT rate
Example: Use the actual total income amount received by the employee
Rick worked for the employer for all twelve months of the previous tax year and earned $50,000 gross income. He received gross employer superannuation contributions of $4,000 (8%) and the employer also paid $216 other superannuation on his behalf.
Rick’s ESCT threshold rate is calculated like this:
| Gross income | $50,000.00 |
| plus superannuation contributions | $ 4,000.00 |
| plus other superannuation | $ 216.00 |
| Total ESCT threshold amount is | $54,216.00 |
As the ESCT threshold amount of $54,216 is between $16,801 - $57,600, the ESCT rate is 17.5%.
If the employee did not work for the employer for all twelve months of the previous tax year, the employer estimates the employee's full-year earnings to calculate the ESCT threshold amount for the employee ESCT rate.
Example: Calculate a 'grossed-up' annual estimation amount
Manu worked for the employer between 1 December and 31 March (4 months) in the previous tax year. He received $3,000 gross income and his employer paid superannuation contributions of $120 in total during that time.
Manu’s ESCT threshold rate is calculated like this:
| Gross income | $3,000.00 |
| plus superannuation contributions | $ 120.00 |
| Part-year ESCT threshold amount to be grossed-up to a full year equivalent (annual estimation) | $3,120.00 |
| Full-year ESCT threshold equivalent is calculated as $3,120 divided into 4 (months) then multiplied by 12 (months) | $9,360.00 |
| Total ESCT threshold amount is | $9,360.00 |
As the ESCT threshold amount of $9,360 is between $0 - $16,800 the ESCT rate is 10.5%.
Note: The employer must estimate the rate of ESCT as above. Any rate set for any employee must always remain the same for a full tax year. This means that only 1 rate can be used for any employee in any tax year. The only time the employer can change the ESCT rate is at the beginning of a new tax year .
Taxing employer contribution as salary and wages through PAYE
Read an example of taxing employer contribution as salary and wages through PAYE
Completing your employer deductions forms and employer monthly schedule
Add up the ESCT deductions from all the employer contributions made to your employees’ KiwiSaver, complying fund or defined benefit schemes and enter this amount on your employer deductions form.
Enter your employer contributions on your EMS as a net amount (minus ESCT deducted).
Example: Calculating employer contributions
Kerry started employment in April 2012 and earned $3,000 gross income in this month. She also received a gross employer superannuation contribution of $60 (2%).
Kerry’s ESCT threshold rate is calculated like this:
| Gross income of $3,000 grossed-up to 12 months ($3,000 gross per month then multiplied by 12 months) | $36,000.00 |
| plus superannuation contributions of $60 grossed-up to 12 months ($60 gross per month then multiplied by 12 months) | $ 720.00 |
| Part-year ESCT threshold amount grossed-up to a full year equivalent (annual estimation) | $36,720.00 |
| Total ESCT threshold amount is | $36,720.00 |
As the ESCT threshold amount of $36,720 is between $16,801 - $57,600, the ESCT rate is 17.5%.
Now that Kerry's employer has worked out the correct ESCT rate to deduct from the gross superannuation amount they paid, they can now calculate the ESCT deductions and the net employer contribution amount. Those figures will be entered in their April EMS (employer monthly schedule).
The net contribution amount is calculated like this:
| Gross employer superannuation contribution | $60.00 |
| less ESCT rate of 17.5%, so $60 multiplied by 0.175 | $10.50 |
| Net employer superannuation contribution | $49.50 |
Employer deduction form (IR345)
You will need to total all net KiwiSaver employer contributions in key point 7 on the IR345.
You will also need to total all ESCT deductions from all your employer contributions in key point 8 on the IR345.
Download the Employer deduction form (IR345).
Employer monthly schedule (IR348)
You will need to calculate the net KiwiSaver employer contribution for each employee and add this into key point 7 on the IR348.
Note: Contributions to any other superannuation funds i.e. Complying or Defined benefit funds, are not included on the EMS (IR348).
Download the Employer monthly schedule (IR348).
Update payroll software
If you use a payroll software package for working out your PAYE, you’ll need to get an upgrade from your software provider.
If you need help calculating ESCT or want to know more, please call 0800 377 772.
Use this checklist to get ready for the April 2012 changes
Filing ESCT details correctly
What filing method do you use?
If you use employer deductions forms (IR345) and the employer monthly schedule (EMS or IR348) to file your PAYE details, or file PAYE details through IR-File (on-screen form), you must:
- file an employer deductions form, monthly or twice-monthly (for large employers) by the due date
- file your employer monthly schedule for each period by the due date
- Calculate ESCT on any employer contributions you make to any employees’ superannuation funds/schemes
- enter net employer contributions on your EMS.
If you file your PAYE details through ir-File (file transfer), you must:
- check your payroll software is updated for 1 April 2012
- continue to use your compatible payroll software and transfer your PAYE files to Inland Revenue through ir-File.
Date published: 04 Apr 2012
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