If you have employees who belong to a superannuation scheme (eg, KiwiSaver) you'll usually pay employer contributions to the scheme. Employer superannuation contribution tax (ESCT) is a tax deducted from the employer superannuation cash contributions you pay into the employee's KiwiSaver or superannuation account.
- Employer contributions
- Determining the ESCT rate
- Calculating ESCT
- Filing and paying ESCT
- Correcting ESCT
- PAYE intermediaries
Employer superannuation contribution tax (ESCT) video
Jennie owns a busy hairdressing salon in town. Watch the following video to see how she calculates ESCT for her employees and transfers the figures to her employer returns.
MP4 video | 5:58 mins
Read the ESCT information sheet (IR721)
PDF | 2 pages | 437KB
The following tools are mentioned in the ESCT video:
The term "employer superannuation cash contributions" covers any cash contribution to a superannuation fund paid by the employer for the employee's benefit. A superannuation fund is a scheme that has been registered under the Superannuation Schemes Act 1989.
If an employee asks an employer to make deductions from their wages and pay them into a superannuation scheme, these are not employer contributions.
You're required to make employer contributions to your employee's KiwiSaver account or complying fund. The minimum amount you'll need to contribute is 3% of your employee's salary or wage.
Determining the ESCT rate
The easiest way to determine your employee's ESCT rate is by combining their annual salary or wage and your gross annual employer contributions. This is called the ESCT rate threshold.
|Employee's salary or wage income for year ended 31 March (including gross superannuation employer contributions)||ESCT from 1 April|
|$0 to $16,800||10.5%|
|$16,801 to $57,600||17.5%|
|$57,601 to $84,000||30%|
How you work out the combined income (ESCT rate threshold) depends on how long the employee has worked for you.
Employee worked for you the entire previous tax year (1 April to 31 March)
The total salary or wage the employee received, plus the gross employer contributions paid in that year, is the ESCT rate threshold amount.
Employee worked for you for part, or none, of the previous tax year
Estimate their total salary or wage, plus the employer contributions you'll make to them in the current income year, as the ESCT rate threshold amount.
The calculated ESCT rate is used for all employer contributions made in the current tax year. If your employee's salary or wage increases or decreases during the current tax year don't adjust their ESCT rate. Update any change at the start of the following tax year.
In some cases an employer may be "locked in" to an employment agreement where they contribute a set percentage of their employee's salary. It may be necessary to gross up the employer contribution so the employee receives their full entitlement. Calculate the tax using this formula:
ESCT = a divided by (1 minus a) multiplied by b
- a is the rate of ESCT, and
- b is the actual amount paid to the fund.
Working out ESCT under the PAYE rules
If you and your employee agree, your employer contribution can be treated as part of their gross salary or wage and taxed under the PAYE rules.
Employees must understand that doing this increases their gross salary or wage which will affect:
- their Working for Families Tax Credits
- their independent earner tax credit entitlements
- the amount of child support they pay
- their student loan repayments.
However, they can change back to the other option at any time.
The employer contribution is still paid to the superannuation fund, not to the employee. The value of the contribution is added to your employee's gross salary or wage for the pay period and taxed using the PAYE rules based on their current tax code.
Contributions treated as salary and wages are subject to the ACC earners' levy (included in the PAYE rate).
There are two ways to pay the employer contribution to the superannuation fund:
- The gross amount is paid to the superannuation fund and the employee's net salary or wage is reduced by the amount of PAYE.
- The net amount is paid to the superannuation fund after deducting the income tax component of the PAYE.
ESCT and secondary jobs
The ESCT rate is worked out for each employer, rather than the employee's total combined income from all sources. You don't need to ask your employee how much they're earning from their other jobs, simply work out their ESCT rate threshold based on how much you've paid them.
When you've worked out the ESCT deduction rate, you'll be able to calculate and make the deduction from the employee's gross employer contribution for that pay period. The easiest way to work out the ESCT is to use our PAYE / KiwiSaver deductions calculator.
ESCT is calculated on each whole dollar of the employer contribution.
Filing and paying ESCT
The total ESCT deducted for all employees is shown in Box 8 of your Employer deductions (IR345) form and is paid to us with your PAYE and other employer deductions.
You must file the Employer deduction (IR345) form, as well as your Employer monthly schedule (IR348), to ensure that we know what your ESCT assessment is and that the correct amount is being paid.
If you are filing manually you need to:
Read our guides Helping you understand your employer forms (IR688) and Completing employer monthly schedules (IR337) to help you complete your Employer monthly schedule (IR348) and Employer deductions (IR345) form.
ir-File is a secure, web-based service that lets you file your Employer monthly schedule (IR348) and Employer deductions (IR345) form electronically. It's the most accurate and efficient way to send us your employee information.
ir-File and ESCT
The total ESCT amount doesn't appear on the Employer monthly schedule (IR348). If you use ir-File this amount will not automatically pre-populate on to the Employer deductions (IR345) form and must be added manually.
Tax Credit Payroll Donations (TCPD)
If you file electronically, you can choose to offer payroll giving to your employees. Tax credits for payroll donations are calculated when a donation is made, and are captured on the Employer monthly schedule (IR348) and Employer deduction (IR345) form. Please don't put ESCT amounts in the box allocated for this.
If you think you've made a mistake with your ESCT, or other employer deductions, then please use the Employer monthly schedule amendment (IR344) form. Add your amendment figures for "Original details sent" and "Changed to" under the category that describes the amendment.
If the amendment is due to an:
- employee opting out or closing their KiwiSaver account, we'll refund these amounts to you (they can't be used to offset arrears or be transferred to future periods), or
- overpayment, we'll use it to pay any amounts you owe us, or we'll refund it.
If you need to call us about your ESCT, please have the following information available:
- your IRD number
- PAYE records (including your employee's ESCT rate)
- details that you originally sent through for your employee, and
- the new details of the amendments that you're making.
To make sure all your calculations are correct and you file and pay your PAYE and other deductions on time, you may choose to use a PAYE intermediary. A PAYE intermediary may be an existing payroll service provider, or an accountant or other tax professional who can provide payroll services. When you appoint an intermediary, they become responsible for fulfilling your PAYE obligations and act on your behalf for all your PAYE responsibilities.
Date published: 23 Jul 2014