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Employer responsibilities
Ngā kaiwhakawhiwhi mahi takohanga

Employer superannuation contribution tax (ESCT)

If you have employees in 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.

Employer contributions

The term employer superannuation cash contributions covers any cash contribution to a superannuation scheme or fund paid by the employer for the employee's benefit.

If an employee asks an employer to make deductions from their wages and pay them into a superannuation scheme, these aren't employer contributions.

Find out more about employer contributions to existing superannuation schemes

You need 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 gross salary or wage.

Find out more about employer contributions to KiwiSaver accounts or complying funds

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Determining the ESCT rate

The easiest way to work out 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%
$84,001 upwards 33%

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 ESCT rate threshold amount is the total salary or wage the employee received, plus the gross employer contributions paid in that year.

Example - employee working for the entire previous tax year (1 April to 31 March)

Daniel worked at Salon Jennie Ltd for the full tax year 1 April 2017 to 31 March 2018.

His total salary of $65,000 plus employer contributions paid during the year of 3% ($1,950) combine to make a total of $66,950. This is Daniel's ESCT rate threshold amount.

Because his total salary plus employer contributions was between $57,601 and $84,000, his ESCT rate is 30%.

Employee worked for you for part, or none, of the previous tax year

The ESCT rate threshold amount is the estimate of their total salary or wage, plus the employer contributions you'll make to them in the current income year.

Example - employee working for part, or none, of the previous tax year

Salon Jennie Ltd hires Max on 1 October 2017. Max's contract says he will receive a salary of $30,000 and employer contributions of $900 a year.

The company estimates Max's ESCT rate, based on the amount of salary or wages plus gross employer contributions he will earn in the remainder of the tax year (1 October 2017 to 31 March 2018). See "Note" below.

Salary $30,000
Employer contributions $900
Total $30,900
$30,900 divided by 12 months $2,575
$2,575 multiplied by 6 months $15,450

 Because the estimate of $15,450 is between $0 and $16,800, the ESCT rate is 10.5%.

Note: If an employee was only employed for three months, the employer would estimate the employee's earnings in those three months and base the ESCT rate on that estimation.

The calculated ESCT rate is used for all employer contributions made in the current tax year. If your employee's salary or wage goes up or down in the current tax year don't adjust their ESCT rate. Update any change at the start of the next tax year.

If you're "locked in" to an employment agreement where you contribute a set percentage of your employee's salary, you may need to gross up the employer contribution so the employee receives their full entitlement. Work out the tax using this formula:

ESCT = a divided by (1 minus a) multiplied by b

where:

  • 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.

Your employee can change back to the other option at any time.

The employer contribution is still paid to the superannuation fund, not 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:

  1. The gross amount is paid to the superannuation fund and the employee's net salary or wage is reduced by the amount of PAYE.
  2. The net amount is paid to the superannuation fund after deducting the income tax component of the PAYE.
Example - ESCT under PAYE rules

Joanne is employed by Salon Jennie Ltd. Her employment agreement includes a weekly contribution of $15 (3%) from the salon to her KiwiSaver account, in addition to her normal weekly salary of $500.

Joanne chooses to have these contributions included as part of her salary and her employer agrees. This means Salon Jennie Ltd uses the total of her salary and the employer contributions of $515 to calculate her PAYE.

If the superannuation contribution is paid as a gross amount, the calculation is:

Weekly gross $500
plus employer contribution $15
Total gross $515
PAYE on $515.00 $78.74
Weekly gross $515.00
less PAYE $78.74
less employee deduction $15.00
less employer contribution $15.00
Net amount $406.26

The following information will be shown on the Employer schedule (IR348):

Gross earnings $515.00
PAYE $78.74
Kiwisaver employee deductions (Box 6) $15.00
Net Kiwisaver employer contributions (Box 7) $15.00

The following information will be shown on the Employer deductions (IR345) form:

PAYE $78.74
Kiwisaver employee deductions (Box 6) $15.00
Net Kiwisaver employer contributions (Box 7) $15.00
ESCT deductions (Box 8) $0.00

If the superannuation contribution is paid as a net amount (see "Note" below) the calculation is:

Weekly gross $500.00
PAYE on $500.00 $75.90
Weekly gross $500.00
plus employer contribution $15.00
Total gross $515.00
PAYE on $515.00 $78.74
less PAYE on $500.00 $75.90
PAYE on employer contributions ($15.00) $2.84
Identify earner premium $15.00 x 1.45% $0.22
Deduct earner premium from PAYE on employer contribution $2.84 - $0.22 $2.62
Subtract tax on employer contribution from gross employer contribution $15.00 - $2.62 $12.38
Weekly gross $515.00
less PAYE $78.74
less employee deduction $15.00
less net employer contribution $12.38
Net Amount $408.88

The following information will be shown on the Employer schedule (IR348):

Gross earnings $515.00
PAYE $78.74
Kiwisaver employee deduction $15.00
Net Kiwisaver employer contribution $12.38

The following information will be shown on the Employer deductions (IR345) form:

PAYE $78.74
Kiwisaver employee deduction $15.00
Net Kiwisaver employer contribution $12.38
ESCT deductions $0.00

Note: Net refers to tax, not PAYE. The earners' premium must be removed before the tax is deducted from the gross employer contribution.

ESCT and secondary jobs

You don't need to ask your employee how much they're earning from their other jobs. Work out their ESCT rate threshold based on how much you've paid them.

The ESCT rate is worked out for each employer, not the employee's total combined income from all sources.

Example - ESCT for secondary jobs

If the estimated salary and employer contribution for the first job is $47,600 that employer's ESCT rate will be 17.5%. If the employee has another job and their estimated salary and employer contribution is $14,300 that employer's ESCT rate is 10.5%.

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Working out ESCT

When you've worked out the ESCT deduction rate, you can work out and deduct it 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.

Note

ESCT is calculated on each whole dollar of the employer contribution.

Example - Calculating ESCT

Daniel's gross weekly earnings of $1,250, gross employer contribution (3%) of $37.50 and an ESCT rate of 30%.

ESCT is applied to the whole dollar amount, which is $37.00

$37.00 multiplied by 30% = $11.10 ESCT

Deduct the ESCT from the gross employer contribution

$37.50 minus $11.10 = $26.40 net employer contribution

Enter the net KiwiSaver employer contributions of $26.40 in Box 7 on both the Employer schedule (IR348) and Employer deductions (IR345) form, and ESCT of $11.10 in Box 8 on the Employer deductions (IR345) form.

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Filing and paying ESCT

The total ESCT deducted for all employees is shown in Box 8 of your Employer deductions (IR345) form. It is paid to us with your PAYE and other employer deductions.

Find out more about filing returns and making payments

Online filing

You can file your Employer monthly schedule (IR348) and Employer deductions (IR345) forms electronically in myIR. It's the most accurate and efficient way to send us your employee information.

Note

myIR and ESCT

The total ESCT amount doesn't appear on the Employer monthly schedule (IR348). If you use myIR this amount won't automatically pre-populate on to the Employer deductions (IR345) form. You must add it 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). Don't put ESCT amounts in the payroll giving box.

Find out more about filing employer returns in myIR

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Paper Filing

If you file using paper, you need to complete your:

If you think you've made a mistake with your figures you can send us an Employer schedule amendments (IR344) form.

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)
  • Overpayment
    We'll use it to pay any amounts you owe us, or we'll refund it.

For more information on completing your returns check out our video

HTML5 | 5.57 seconds |

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PAYE Intermediaries

You can choose to use a PAYE intermediary to make sure:

  • all your calculations are right, and
  • you file and pay your PAYE and other deductions on time.

The intermediary may be an existing payroll service provider, or an accountant or other tax professional who can provide payroll services. When you use an intermediary, they become responsible for fulfilling your PAYE obligations. They'll act on your behalf for all your PAYE responsibilities.

Find out more about PAYE intermediaries