Role of your employer
All employers:
- have KiwiSaver responsibilities
- can choose their own KiwiSaver scheme for their employees
- will need to contribute to their employees' KiwiSaver accounts
- can negotiate with you the salary sacrificing of KiwiSaver contributions.
Your employer's main responsibilities
The table below describes your employer's main KiwiSaver responsibilities.
| If ... | then your employer must ... |
|---|---|
|
|
|
you want to join KiwiSaver, and you're:
|
|
|
you've already:
|
|
If you have an "exempt" employer
If your employer already offers a registered superannuation scheme they may have an exemption from the Government Actuary.
The exemption means that your employer doesn't have to automatically enrol new employees in KiwiSaver, but they still have to:
- have KiwiSaver available to any staff who want to join
- make deductions for any new employees who are KiwiSaver members
- make employer contributions for staff who are KiwiSaver members.
Employer-chosen schemes
What are they?
Your employer can choose to have a KiwiSaver scheme for employees who don't choose a scheme of their own. All new permanent employees must be eligible to be members of the scheme.
How do they affect you?
If you want to join KiwiSaver you can still choose the savings scheme you want to invest in. If you don't choose your own savings scheme, you'll be allocated to your employer's chosen scheme. You'll also be able to change schemes later, if you want to.
What happens if you cease to be eligible?
If you cease to be eligible to be a member of your employer's chosen KiwiSaver scheme, then:
- your employer, or the provider as the employer's agent, must notify both you and us in writing, and
- you need to join another scheme, or
- we'll allocate you to a default scheme and give you three months to make an active choice. After this time we'll confirm your enrolment in the default scheme.
Employer contributions
Since your first whole pay period after 1 April 2008 your employer is required to make compulsory contributions to your KiwiSaver scheme if you're:
- 18 or over, and
- having contributions deducted from your salary or wages.
Your employer will start by paying an extra 1% of what you earn to your KiwiSaver scheme, rising by 1% each year until a maximum of 4% is reached by 2011.
Wage bargaining
Currently compulsory contributions must be on top of gross wages and salary, unless your employer negotiated an agreement with you in good faith after 13 December 2007. The Government is proposing amendments to the Employment Relations Act. These amendments will make it grounds for a personal grievance if employers offer lesser terms and conditions to you as a KiwiSaver member. For further information you can read the media release.
Sharing contributions
If your employer agrees, their contribution can count towards your minimum contribution of 4%. This means that:
- until 31 March 2010 you could contribute 2%, matched by your employer contributing 2%
- from 1 April 2010 you would both need to contribute 3%, and
- from 1 April 2011 onwards you would both need to contribute 4%, as set out below:
| Year | Minimum employee contribution | Minimum employer contribution | Total contribution |
|---|---|---|---|
| 1 April 2008 to 31 March 2011 | 2% | 2% | 4% |
| 1 April 2010 to 31 March 2011 | 3% | 3% | 6% |
| 1 April 2011 onwards | 4% | 4% | 8% |
You will need to discuss and agree to this option with your employer before you can start paying less than the minimum.
Employer superannuation contribution tax exemption
Your employer's contributions are exempt from employer superannuation contribution tax (ESCT) (formerly known as specified superannuation contribution withholding tax - SSCWT). ESCT is usually paid by employers when they contribute to a superannuation fund for an employee. This exemption applies up to a cap of whichever is less:
- your contribution, or
- 4% of your gross pay.
Existing schemes
If you join KiwiSaver and your employer already contributes to an existing superannuation scheme for you, they may not be required to make another contribution to your KiwiSaver account. This depends on whether your existing scheme meets certain criteria.
Employer tax credit
The Government will help cover the cost of your employer's contributions by giving them a tax credit of up to $20 a week per contributing employee. This means that in the first year it won't cost your employer anything if you earn up to $104,000.
Salary sacrificing of KiwiSaver contributions
What is salary sacrifice?
Salary sacrifice is an arrangement where part of your salary is sacrificed for an employer superannuation contribution. You and your employer mutually agree that your salary will be reduced by a specific amount, which is instead paid as an employer contribution to your superannuation scheme.
What is the effect of salary sacrificing KiwiSaver contributions?
The effect for you is that any contributions you make using a salary sacrifice arrangement:
- reduce your annual salary (so you will pay less income tax)
- will not count towards your member tax credit entitlement, as they are treated as an employer contribution, and
- may affect any of your future salary-based entitlements - for example, to ACC and redundancy.
The effect for your employer, depending on your own level of contributions and the type of your super scheme, is that they will pay:
- less employer superannuation contribution tax (formerly known as specified superannuation contribution withholding tax - SSCWT), and
- in some cases no employer superannuation contribution tax at all.
The effect on the employer is explained in the following table:
| If ... | then your employer will pay ... |
|---|---|
|
your employer contributes towards a superannuation fund and you contribute nothing |
employer superannuation contribution tax on the full amount of the contribution. |
|
you sacrifice an amount less than your KiwiSaver contribution, both of which are less than 4% of your annual salary or wages |
no employer superannuation contribution tax on the sacrificed amount. |
|
you sacrifice an amount more than your own 4% KiwiSaver contribution |
employer superannuation contribution tax on the difference between the sacrificed amount and your contribution. |
Example: salary sacrifice of 4%
John earns $100,000 per year. He salary sacrifices 4% of his income in exchange for a contribution of the same amount from his employer, and he contributes 4% of his income to KiwiSaver. The amount of tax that John has to pay is reduced because his new salary is lower (see table below for details - note that calculations are rounded to whole dollars).
|
John's annual salary |
= |
$100,000 | |
|
Less 4% salary sacrifice |
$100,000 |
= |
$4,000 |
|
John's new annual salary |
= |
$96,000 | |
|
John's annual tax saving, based on John's marginal tax rate of 39c in the $ |
$4,000 |
= |
$1,560 |
|
John's KiwiSaver contribution, based on 4% of new salary |
$96,000 |
= |
$3,840 |
|
Difference between salary sacrifice and John's KS contribution |
$4,000 |
= |
$160 |
|
ESCT payable, based on tax rate of 33 cents in the $ |
$160 |
= |
$53 |
|
Employer contribution (salary sacrifice after employer contribution withholding tax deducted) |
$4,000 |
= |
$3,947 |
|
Total KiwiSaver contribution (from employer and John) |
$3,947 |
= |
$7,787 |
With John sacrificing 4%, his employer's contribution is more than John's own KiwiSaver contribution. This means that John's employer has to pay employer superannuation contribution tax on the difference.
Important
We strongly recommend that you seek professional advice before considering salary sacrifice.
Find out more
Further information for employers about what KiwiSaver means for them is on the Inland Revenue website.
Forms and guides
Check out what KiwiSaver forms and guides are available.
Date published: 11 Jul 2008
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