Employer contributions
From 1 April 2008 you will be required to contribute to your employee's KiwiSaver account or complying fund at 1% of their gross salary or wage, rising to 4% in 2011. A complying superannuation fund is a section within a registered superannuation scheme that has been approved by the Government Actuary as having met certain criteria similar to KiwiSaver, eg KiwiSaver lock-in rules and portability.
KiwiSaver employer contributions need to be paid with your PAYE while contributions you make to your employees' complying funds still need to be paid directly to the applicable scheme.
Eligibility
You need to make contributions if your employee:
- is having KiwiSaver or complying fund member contributions deducted from their salary or wages, and
- is aged 18 and over, and
- has not reached the age of eligibility for New Zealand Super (currently 65), or has not been a member of a KiwiSaver scheme or complying fund for five years, whichever date is later, and
- is not a member of a defined benefit scheme.
How to calculate minimum compulsory contributions
Currently compulsory contributions must be on top of gross wages and salary unless you?ve negotiated an agreement with your employee/s in good faith after 13 December 2007. The Government is proposing amendments to the Employment Relations Act to make it grounds for a personal grievance for you to offer lesser terms and conditions to an employee because they are a KiwiSaver member. For further information you can read the media release.
The table below shows how this will work:
| From the first whole pay period after | Minimum employer contribution (% of gross salary) | Minimum employee contribution (% of gross salary) |
|---|---|---|
|
1 April 2008 |
1 |
4 or 8 |
|
1 April 2009 |
2 |
4 or 8 |
|
1 April 2010 |
3 |
4 or 8 |
|
1 April 2011 |
4 |
4 or 8 |
Compulsory employer contributions must vest in the employee immediately.
These percentages are minimum contribution rates. You can make additional voluntary contributions if you wish.
Shared contributions
Your contributions can count towards the employee's minimum contribution of 4%, as long as you agree to contribute 2%. This transitional measure would require you to contribute an additional 1% until 1 April 2009. It is entirely your choice whether you wish to do this.
Here's how it works:
| From the first whole pay period after | Employer contribution (% of gross salary) |
Employee contribution (% of gross salary) |
|---|---|---|
|
1 April 2008 |
2 |
2 |
|
1 April 2009 |
2 |
2 |
|
1 April 2010 |
3 |
3 |
|
1 April 2011 |
4 |
4 |
Employer tax credit
To help offset the cost of your contributions, there will be an employer tax credit of up to $20 per week per employee. You deduct this from the fortnightly or monthly PAYE you send to us, which will minimise the impact on your cash flow. The employer tax credit can be claimed for both compulsory and voluntary contributions to KiwiSaver schemes and complying funds.
Calculating employer contributions
Here's the formula to use if you're not currently contributing to your employees' superannuation:
Payment of gross salary or wages x compulsory rate = minimum employer contribution
For example, if your employee earns $2,600 a month and is a member of a complying fund, from the first whole pay period after 1 April 2008, the minimum compulsory employer contribution will be:
$2,600 x 1% = $26.00
You only need to pay the compulsory employer contribution if your employee is also contributing to a KiwiSaver scheme or complying fund. You can claim a tax credit on this amount.
Employer contributions must be made through us and be accompanied by an Employer deduction form (IR345 ). You must also include payment details on your Employer monthly schedule. These forms can be filed online if you are registered to use our ir-File service. We hold employer contributions until payment is cleared by your bank and then pass them on to the provider.
The Crown does not guarantee employer contributions and one-off payments.
Don't pay member or employer contributions for a complying fund to us. These should be made direct to the scheme provider.
Stopping and starting contributions
For new employees, you start paying contributions from their first pay. For existing employees, you pay contributions from their first pay after either we or the employee notifies you that they have joined a KiwiSaver scheme or complying fund.
You can stop contributions if the employee elects to take a contributions holiday or when we advise you to stop making contributions.
Opt-outs
If a new employee opts out of KiwiSaver, we'll refund you the employer contributions you've made for the employee, net of any employer tax credit claimed (from 1 April 2008). The refund will be paid with interest.
Interest effective date on employer contributions
We'll pay interest on employer contributions from the date we receive payment.
Back pay
You must make compulsory employer contributions on backdated payments of salary or wages from which member contributions are deducted.
Short-paid employer contributions
We "pro rata" (divide equally) any short-paid employer contributions received. Balances that are too small to pro rata equally across the total number of employees may be divided at our discretion, provided the same employees do not benefit or lose out in every instance.
This does not prevent the scheme trustee from reallocating contributions on the basis provided for in their trust deed, if it differs from the pro rata calculation we use.
If you short-pay employer contributions for a period, any subsequent payments to make up the short payment will be credited to the same period. Short-paid or dishonoured employer contributions do not create enforceable debt.
Employer contributions exempt from employer superannuation contribution tax (ESCT), formerly specified superannuation contribution withholding tax (SSCWT)
Employer contributions to KiwiSaver schemes and complying funds are exempt from ESCT.
The exemption applies to the lesser of:
- an amount equal to the employee's contribution, or
- 4% of the employee's gross salary or wages.
Any contributions over the exemption are subject to employer's superannuation contribution tax.
Maximising the exemption from employer superannuation contribution tax (ESCT)
ESCT is payable on employer contributions to a registered superannuation scheme on behalf of an employee.
The Income Tax Act exempts employer contributions from ESCT if the contribution is paid to an employee's KiwiSaver scheme and does not exceed the cap provided. This creates an incentive to decrease salary in exchange for employer contributions - which will be tax free.
The cap
The cap:
- is the lesser of the employee's contribution or 4% of the employee's gross salary or wages
- is adjusted according to previously exempted amounts and how long the employer has been deducting KiwiSaver contributions from the employee's salary or wages
- applies to employer contributions made on a pay-by-pay basis as well as to lump sum payments to a member's KiwiSaver scheme.
To calculate whether an employer contribution is eligible for the exemption, employee contributions from the previous 12 months are taken into account. The cap applies on a rolling basis and is not tied to a particular year.
Complying funds
This exemption has been extended to complying funds. A complying fund is a section within a registered superannuation scheme that has incorporated certain KiwiSaver rules - in particular portability and lock-in. Further information can be found in the Tax Information Bulletin Vol 19, No 1 (February 2007).
How to maximise
Maximising the value of the exemption from ESCT is achieved by multiplying current salary by:
- 0.0384615 (ie 1 - 1/1.04) for a 4% employer contribution
- 0.0196078 (ie 1 - 1/1.02) for a 2% employer contribution
to determine the amount to be salary-sacrificed.
This is illustrated by the following examples:
Example 1 - where all of the employer contribution is tax free
| Employee's annual salary = | $100,000.00 |
| Salary multiplied by 0.0384615 = | $3,846.15 1 |
| New salary = | $96,153.85 |
| Employee contribution at 4% of new salary = | $3,846.15 |
| Tax benefit = | $1,499.94 2 |
|
2 Employer contribution $3,846 (ESCT is calculated on whole dollars) multiplied by employee's marginal tax rate 39%. | |
Example 2 - 2% employee and 2% employer contribution
| Employee's annual salary = | $40,000.00 |
| Salary multiplied by 0.0196078 = | $784.31 1 |
| New salary = | $39,215.69 |
| Employee contribution at 2% of new salary = | $784.31 |
| Tax benefit = | $258.72 2 |
|
2 Employer contribution $784 (ESCT is calculated on whole dollars) multiplied by employee's marginal tax rate of 33%. | |
Additional information
Date published: 03 Jul 2008
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