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Employer Summary

Published 19 December 2007

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Compulsory employer contributions

From 1 April 2008 you must make compulsory employer contributions to your employees’ KiwiSaver scheme or complying superannuation fund. 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.  If you’re already making contributions to your employees’ superannuation scheme you may be able to offset these against the new compulsory employer contribution, subject to certain conditions.

To begin with, you must contribute a minimum of 1% of your employees’ salary or wages. The amount you must contribute will increase by 1% every year until it reaches 4% in 2011, as shown in the table below.

  2008 2009 2010 2011
Employer 1% 2% 3% 4%
Employee 4% or 8% 4% or 8% 4% or 8% 4% or 8%

As a transitional measure, until 31 March 2012, if your employee wants to and you agree, you can also choose to split your employee’s minimum contribution 50/50. That means that to begin with you would both put in at least 2% a year (making a total of 4%). Bear in mind that with this option the amount you must contribute will increase in 2010 to 3% and reach a minimum of 4% in 2011. Your compulsory employer contribution is included in the table below:

  2008 2009 2010 2011 2012
Employer 2% 2% 3% 4% 4%
Employee 2% 2% 3% 4% 4%

Points to note

  • Compulsory employer contributions are not required when an employee is getting ACC or paid parental leave payments paid by Inland Revenue.

    If you take part in ACC’s partnership programme, or have an ACC employer reimbursement agreement you need to continue to deduct any contributions that were in place before the employee’s accident unless they apply for a contributions holiday. You can choose whether to continue compulsory employer contributions.
  • Your contributions are also exempt from withholding tax (SSCWT) up to 4% of employees’ gross salary or wages, subject to a cap.
  • The legislation requires that compulsory employer contributions must be paid on top of each employee’s gross salary or wages. This rule will apply despite any previous contractual agreements you may have already made with any of your employees before 13 December 2007. From this date you can offset future employer contributions against pay movements as long as they have been negotiated with your employees in good faith.
  • KiwiSaver employer contributions are paid to Inland Revenue through the PAYE system. Contributions to complying funds are still paid directly to the scheme.

Employer tax credit

From 1 April 2008, you can claim a tax credit of up to $20 per member per week when you contribute to KiwiSaver schemes or complying superannuation funds on behalf of your employees. The purpose of the employer tax credit is to reimburse you for the cost of making contributions to your employees’ KiwiSaver or complying superannuation fund schemes.

It is your responsibility to determine eligibility and claim as appropriate.

You can claim the tax credit from the first whole pay period after an employee starts new employment, or from the first pay after you receive notice from Inland Revenue or the employee that they have joined a KiwiSaver scheme.  The whole pay period relates to 1 April application (eg from 1 April 2008 the 1% applies to the first whole pay period after 1 April - no compulsory employer contribution is required for pay periods which include 1 April 2008).

You claim the employer tax credit when you file your PAYE returns using a new version of the IR345. You offset the tax credit against the payment due and pay the net amount to us.

The following table shows the maximum annual gross salary or wages covered by the tax credit:

From Compulsory employer contribution Annual gross salary or wages completely offset by the value of the employer tax credit
1 April 2008 1% $104,000
1 April 2009 2% $52,000
1 April 2010 3% $34,667
1 April 2011 onwards 4% $26,000

Provided you make an employer contribution in the PAYE period, you can claim a tax deduction of the lesser of the:

  • actual employer contributions for the employee for the period, and
  • amount given by the formula “$20 x the number of weeks in PAYE period”

Use the actual number of weeks in the PAYE period. For example, June has 30 days so 30 divided by 7 = 4.29 weeks.

Number of days in the month Number of weeks in the PAYE period Maximum monthly employer tax credit able to be claimed
28 4.00 $80.00
29 4.14 $82.86
30 4.29 $85.71
31 4.43 $88.57

Using the employer tax credit

Employer tax credits are used by Inland Revenue in the following order:

  1. to offset your compulsory employer contributions
  2. to pay for voluntary employer contributions (subject to existing pro rata rules)
  3. to pay to pay any other tax obligations
  4. any excess will be refunded to the employer by Inland Revenue

To qualify for the employer tax credit

  1. The employer must carry on business from a fixed establishment within New Zealand or be a non-resident employer who chooses to make KiwiSaver deductions and contributions for PAYE resident employees. The employer must be:
    • Resident; or
    • If non-resident carrying on a business from a fixed establishment, or  
    • If non-resident and not carrying on a business from a fixed establishment an employer who chooses to make KiwiSaver deductions and contributions for employees. 
  2. The employer contribution must be made to a KiwiSaver scheme or a complying superannuation fund.
  3. The employee receiving the contribution must be over 18 years of age, and be less than the age of eligibility to withdraw from their KiwiSaver scheme.
  4. The employer’s contributions must be actual employers’ superannuation contributions.
  5. Private domestic workers who choose to make employer contributions may claim employer tax credits.
  6. Employers will determine eligibility for the employer tax credit and claim as appropriate.

Casual employment

There is a new definition of casual employment for KiwiSaver purposes. Casual employees engaged on an irregular and intermittent basis and who receive holiday pay with their wages are now not subject to automatic enrolment. However, the 28 day rule still applies for temporary employment.

Definition of salary and wages

The definition of salary and wages used to determine which payments need to have contributions deducted from them is changing. So, from 1 April 2008, deductions don’t need to be made from redundancy payments, accommodation benefits or taxable overseas living and accommodation allowances. This also means no compulsory employer contribution is required for these salary components.
Employer and employee contributions to a complying superannuation fund will continue to be based on the employee’s gross base salary or wages rather than gross salary or wages.

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