KiwiSaver - Employers
- Provide all new employees, and existing employees who choose to opt in to a KiwiSaver scheme by giving their employer a KiwiSaver deduction notice, with a KiwiSaver information pack (supplied by Inland Revenue). If they have selected a preferred KiwiSaver provider, they must also give their employees an Investment Statement for that scheme.
- Send Inland Revenue new employee details (for those employees subject to automatic enrolment), use the KS1 form.
- Deduct KiwiSaver contributions, starting from the employee's first pay. Deductions are set at 3% of gross salary or wages, unless the employee chooses the higher rate of 4% or 8%. Employers must forward these contributions to Inland Revenue on a monthly basis (together with PAYE payments).
- Act on any opt-out requests. They may also have to refund contributions that had been deducted, but not yet forwarded to Inland Revenue. Use the KS10 New employee opt-out request.
- Act on any opt-in requests. This involves providing information packs (and Investment Statements if appropriate), advising Inland Revenue and commencing deductions. Use the KS1 Employee details.
- Act on any contributions holiday notices. Use the KS6 Contributions holiday request.
Temporary staff on contracts of 28 days or less do not have to be enrolled in KiwiSaver.
- Employers will be provided with an off-the-shelf superannuation scheme, which provides the efficiency of making employee and employer contributions through the PAYE system.
- Employer contributions to a KiwiSaver scheme (or a complying superannuation fund) are exempt from Specified Superannuation Contribution Withholding Tax (SSCWT), up till 1 April 2012, subject to a cap the lesser of the employee's contribution or 2 per cent of the employee's gross salary.
- Transition rules can be agreed between the Employer and Employee and applied - see details below.
What employers need to do under KiwiSaver:
- Employer contributions to KiwiSaver schemes were required to be made through Inland Revenue. All other KiwiSaver requirements were unchanged.
- Employers were required to match employee contributions to KiwiSaver (or a complying superannuation fund) of 3%.
The Employer deductions form (IR 345), will have additional boxes where employers can subtract the amount of the tax credit calculated.
Compulsory employer contributions must vest in the employee immediately.
Inland Revenue have sent ks 4 Employers Guide and ks3 New Employee Guides to all employers. They have also produced an Introduction to KiwiSaver which has also been translated into Maori, Samoan, Tongan, Cook Island Maori, Chinese and Korean. You can get copies from our Documents Page.
New employees must join but may elect to opt-out. Use the ks10 New Employee opt-out request.
If your existing employee has opted to join KiwiSaver through a scheme provider, you do not need to complete a KiwiSaver employee details KS1 form. The KiwiSaver scheme provider will send Inland Revenue your employees information, and Inland Revenue will send you a letter with the employees name, IRD number and the selected deduction rate. Once you receive this, you can start making deductions from your employees wages.
Key facts of KiwiSaver:
- The minimum employee contribution is currently 3% of a member's gross pay.
- The compulsory employer contribution (CEC) is 3%.
- The employer superannuation contribution tax exemption (ESCT) will be capped at the compulsory employer contribution rate of 2% from 1 April 2009. (That is equivalent to 2% of the employee's gross salary or wages and is subject to KiwiSaver contributions being made by your employee.)
You may need to reduce the contribution rates for existing KiwiSaver employees if they notify you that they would like to change their contribution rate to 2%. You'll need to do this through your payroll provider or through your payroll system. You should ask your staff for written confirmation of their intention to reduce their contribution rate - ask them to complete a new KiwiSaver deduction form (KS2) or to write to you. There is no need to contact IRD.
New employees who join and are automatically enrolled in KiwiSaver and who don't tell you how much they want deducted from their pay will have a default rate of 3% deducted from their gross pay.
If you choose to contribute more than 3% into the employees KiwiSaver accounts (that is more than the amount exempt from employer superannuation contribution tax), you'll have to pay employer superannuation contribution tax (ESCT) on the contributions above 2%.
ESCT can be taxed in one of the following ways:
- at a flat rate of 33 cents in the dollar;
- an optional ESCT rate based either on the annual salary or wages paid to the employee in the previous standard tax year (where the employee was employed for all of that year), or an estimate of the total amount of salary or wages that the employee will earn in the year ahead (where the employee was not employed for all of the previous tax year). This option is offered at the discretion of the employer.
- treat the employer contribution as salary or wages, for which you'll need the agreement of your employee.
In the 2015 budget the government announced it will continue giving tax credits of 50c per dollar up to $521. However the $1000 Kiwi-Saver kick start has now come to an end.
Definition of salary and wages
Salary/wages used to calculate KiwiSaver contributions does not include:
- redundancy payments and
- expenditure and allowances for accommodation overseas or other costs of overseas living.
But is deducted from PAYE-related remuneration such as bonuses, overtime and commission.
Weekly ACC compensation and parental leave payments are excluded from the calculation of salary or wages for compulsory employer contributions.
Employers Offering an existing Superannuation scheme
The government recognises that non-KiwiSaver employer-sponsored schemes have been in place for some time that incorporate desirable characteristics of KiwiSaver schemes. Arrangements to accommodate these employers and schemes have been made, such as expanding the eligibility to tax credits and allowing employer contributions to count towards employers compulsory requirement, and will apply in specific circumstances.
Eligibility for the employer tax credit
Employers will be eligible for the tax credit on contributions made to complying superannuation funds. 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, e.g., KiwiSaver lock-in rules and portability. This ensures that the employer tax credit applies in respect of contributions towards an employee long-term retirement savings.
Compulsory employer matching contributions
To minimise the impact of compulsory matching employer contributions, the government will allow employer contributions to all non-KiwiSaver schemes to count towards compulsory contributions for:
- employers who provide access to a superannuation scheme as of 17 May 2007
- existing scheme members (ie. members prior to 1 April 2008), or where the employment contract of existing employees (ie. employees prior to 1 April 2008) provides access to the scheme
- existing employment (ie. employment as at 1 April 2008).
Contributions that count towards the compulsory amount will vest immediately in the employee.
Automatic enrolment process for a temporary employee or a casual agricultural worker
Temporary employees employed for 28 continuous days or less are not enrolled automatically, but can opt in to KiwiSaver. They can either give you a KiwiSaver deduction form (KS 2) or contract with a KiwiSaver scheme provider
An employee who is employed to work 'as and when required', without a specific end date, starts their period of employment each time they are engaged to work and ceases each time that engagement ends. If an employee is
engaged for future work before the previous engagement has ended, the combined engagements are considered as one period of employment.
As long as each distinct period of temporary employment remains 28 continuous days or less, these employees are not subject to automatic enrolment. However, the automatic enrolment rules do apply to temporary employees once their employment goes beyond 28 continuous days i.e. from day 29.
After 28 continuous days, you must give them a KiwiSaver employee information pack (KS 3) and deduct contributions from their next pay. The normal opt out rules will apply once automatic enrolment occurs in these situations.
Casual agricultural workers who are employed for less than three months are not enrolled automatically, but can opt in. They can either give you a KiwiSaver deduction form (KS 2) or contract with a KiwiSaver scheme provider direct. The automatic enrolment rules apply to casual agricultural workers if their employment is extended beyond three months. After three months, you must then give them a KiwiSaver employee information pack (KS 3) and deduct contributions from their next pay. The normal opt out rules apply once automatic enrolment occurs in these situations.
If you employ a temporary employee or casual agricultural worker who is already a KiwiSaver member, then unless they are able to show you a valid contributions holiday notice, KiwiSaver deductions must occur from their first pay.
The above rules only apply in considering whether they are subject to the automatic enrolment rules. The automatic enrolment rules do not however apply if the employee is already a member of a KiwiSaver scheme.
More information about the automatic enrolment process can be found in your KiwiSaver employer guide (KS 4).
Automatic enrolment reminder
It is important to remember that while employees under age 18 can join KiwiSaver, they shouldn't be automatically enrolled. The eligibility chart on page 9 of your KiwiSaver employer guide (KS 4) provides a simple process to help you work out what to do (unless you are an employer exempt from automatic enrolment).
Q & A
If you have a question, contact us and we will endeavour to answer it. Email us here.
Frequently asked questions will be listed below.
Q & A - contributions to KiwiSaver
Q: How will we know if we have over-contributed employer contributions?
A: Inland Revenue's system takes 2% as compulsory employer contributions; the rest will be considered a voluntary contribution and will show on your statement of account (SOA) as a separate transaction.
Q: Can we get an over-contribution back?
A: Yes, by filling out an Employer monthly schedule amendments form (IR344).
Q: When an employee opts out, how and when will an employer's contributions be refunded back to the employer?
A: Employers should be getting these refunded already. They get refunded by direct credit to your bank account (if one is setup) or by cheque. They will show on your SOA. We'll look into any individual cases if employers haven't been getting their refunds. In some cases we have to contact the providers and ask for the money back. This is taking up to 10 days in some cases. But as soon as the money is available for a refund, we will issue or transfer it to another tax type and/or period as requested.
Q: If a member continues to contribute to KiwiSaver and is in employment after age 65, does the employer have to continue making compulsory employer contributions?
A: No, employers are only required to pay compulsory employer contributions until the employee is entitled to withdraw the funds.
Q: If an employee joins when they are 63 years old and remains in the scheme for the minimum five years (i.e. until age 68), do compulsory employer contributions apply for the entire five years, or until the employee reaches the age of 65?
A: Employers must make compulsory employer contributions until the employee is entitled to withdraw the funds - in this case, at age 68.
Q: If I Ir-File, do I still need to forward Inland Revenue the KS 1 form?
A: Ir-File has been enhanced to include an electronic KS 1 on-screen form which includes all the information required by Inland Revenue. This is the electronic equivalent to the paper KS 1 form and must be completed by employers who Ir-File for any eligible employees subject to the automatic enrolment rules, or for employees who opt-in through you as their employer to KiwiSaver.
If you are Ir-Filing and also completing the electronic on-screen form for each eligible employee then you do not need to send us a hard copy of the KS1 form.
However, if you are Ir-Filing but not completing the electronic on-screen form, then you do need to send Inland Revenue a hard copy of the KS 1 form. This can be done by concurrently posting the hard copy KS 1 form/s at the same time as you send your Ir-File. You can get a KS1 form here.
Q: The monthly employer schedule (EMS) already gives Inland Revenue the employee name and IRD number. This should be sufficient for all KiwiSaver purposes?
A: While indeed this would be the ideal situation, it is unfortunately not the case. Either the on-screen KS 1 form or a manual KS 1 form is still required in addition to the EMS schedule.
The difficulty is the employees' address is not provided on the EMS, so the schedule does not satisfy the notice and information requirements imposed on employers by the KiwiSaver Act.
For this reason, the employer must provide the information separately (either in electronic or manual form) or you might receive a warning and then fixed penalties.
Q: Do I need to provide Inland Revenue with the KS 1 form either through Ir-File or manually when an employee opts-in directly with a KiwiSaver Scheme Provider?
A: Yes you do if -
- the employee is subject to the automatic enrolment rules, or
- the employee chooses to both opt-in directly with a scheme provider and, in addition, concurrently opts-in through you as the employer, this before they are confirmed as a KiwiSaver member.
No you don't if:
- the employee is not eligible to join KiwiSaver e.g. is over 65 years of age, or
- the employee is not subject to the automatic enrolment rules, or
- the employee is already a KiwiSaver member at the time they provide you (as the employer) with their KiwiSaver deduction notice.
Q: What choices does an employer have?
A: Employers will be able to choose whether or not to:
- Select a preferred KiwiSaver scheme provider for any employee who does not select their own provider. If an employer has selected a preferred KiwiSaver scheme, they must provide an Investment Statement for that scheme to all new employees and those who opt in by giving their employer a KiwiSaver deduction notice.
- Make voluntary employer contributions to KiwiSaver. Generally, an employer will be able to determine their own rules and conditions concerning such contributions.
- Apply to the Government Actuary for an exemption from the automatic enrolment requirements, if they have a registered superannuation scheme that meets certain criteria. This aims to ensure that KiwiSaver does not encourage quality employer schemes to wind up. Employees who join such schemes will be eligible to apply for the first home deposit subsidy, subject to meeting eligibility criteria, but will not be eligible for any other Government contribution, i.e. the $1,000 contribution, fee contributions or the SSCWT tax break on employer contributions.
- Convert their current superannuation scheme to a KiwiSaver scheme under its existing trust deed, which will require the consent of all existing scheme members. The scheme will then be subject to all KiwiSaver rules.
An employee's KiwiSaver scheme can be, in order of priority, their choice, their employer's choice or a default provider if neither the member nor the employer makes a choice.
If the employer chooses a preferred scheme for their employees, they must also provide an Investment Statement for that scheme to all new and opting-in employees. The Investment Statement outlines how the scheme works and provides information on fees, risks and administrative requirements. (Investment Statements will be provided to the employer by the scheme provider.)
Q: What will it cost employers?
A: Regardless of how many employees an employer has, apart from any amounts they contribute to their employees' KiwiSaver accounts, there will be very little monetary cost involved with KiwiSaver.
There will be a small initial time commitment to obtain all the relevant information. However, it is fully optional whether or not an employer contributes on behalf of their employees.
Q: What is the impact on payroll?
A: Employers will be responsible for giving new employees and existing employees who wish to opt in an information pack, passing on all applicable information to Inland Revenue and giving out Investment Statements where applicable.
On a more regular basis, they will be responsible for passing on all employee contributions to Inland Revenue as part of the PAYE process via a monthly schedule.
Q: What records must employers keep?
A: Employers will need to record which employees are KiwiSaver members, their contribution rate and any notification of contributions holidays or opt-outs. They will also be required to keep KiwiSaver records in the same way they keep PAYE records.
Q: What if an employer already has an alternative registered superannuation scheme?
A: If an employer has an existing registered superannuation scheme, they may be able to apply to be exempt from the automatic enrolment requirements. Their scheme will need to:
- Be open to all new permanent (including part-time) employees;
- Be portable, i.e. members can transfer balances to other schemes when they leave their employment and transfer balances from other schemes to the scheme;
- Have a minimum contribution rate of at least 3% of gross base salary or wages contributed by the member or otherwise credited within the scheme.
- Have employer contributions that vest in the employee within five years of the employee becoming a member of the scheme if the employer contributions count towards the 3% minimum contribution rate.
Q: What about State sector employers?
A: State sector employers will be treated on the same basis as private sector employers:
- They will be eligible for the employer tax credits on contributions to KiwiSaver schemes
- They will be required to make matching contributions to an employee's KiwiSaver scheme
- In some circumstances (outlined in the box above), contributions they make to existing superannuation schemes will count towards the compulsory amount. However, if these contributions are not being paid to a complying fund section within that scheme, they will not be eligible for the employer tax credits.
Q: Whether to become an exempt employer?
A: A central feature of KiwiSaver is that new employees are automatically enrolled in a KiwiSaver scheme unless they expressly "opt out". An exception to automatic enrolment applies where an employer has obtained approval from the Government Actuary to be classified as an "exempt employer".
Such classification can be granted only if the employer offers an alternative superannuation scheme to all employees. It is not necessary that all employees join the alternative scheme - it is sufficient that all employees are eligible to join.
The advantages of becoming an exempt employer are that:
- KiwiSaver becomes a voluntary regime which employees can opt into if they wish (rather than it being a semi-compulsory regime from which they have to opt out); and,
- The KiwiSaver-related administration burden on the employer is reduced. In the early years of KiwiSaver, it is anticipated that employers will process a large number of opt out notices from employees who have been automatically enrolled. That burden is avoided by becoming an exempt employer.
Becoming an exempt employer would not completely extricate an employer (or its employees) from KiwiSaver. The employer will still have to establish systems to deal with those employees who voluntarily opt into KiwiSaver and those employees who were automatically enrolled during an earlier period of employment.
The general view is that employers with pre-existing superannuation schemes may look to become exempt employers. The remainder of employers are likely to view the limited benefits from becoming an exempt employer as not justifying the cost and effort of establishing an alternative superannuation scheme and obtaining Government Actuary approval.
Q: Should you choose a KiwiSaver scheme for your employees?
A: The particular KiwiSaver scheme that employees join will be determined in accordance with the following hierarchy (listed in descending order):
- The scheme the employee has nominated (if any);
- The scheme the employer has nominated, if any (note, there can be only one such scheme at any one time); and,
- The default scheme provided by one of the default providers. There are six such providers and IRD will be responsible for determining to which of those a particular employee is allocated.
Although an employer is not required to nominate a scheme, one advantage of doing so is that it prevents employees (who have not made their own nomination) being allocated to one of the default provider schemes.
As it is expected that default provider schemes will be low risk/low return schemes, the employer could assist employees to derive potentially higher returns by nominating an alternative scheme. The downside to such an approach is that the nominated scheme is also likely to have an increased risk of default.
Some employers may make a nomination on the basis of an existing business relationship with a scheme provider. Obviously, allowing such considerations to influence the decision-making process is fraught with problems for the employer.
Employers are likely to make (or refrain from making) a nomination depending upon how they view the employer-employee relationship:
- Employers who believe that they should assist or encourage employees to save for their retirement are likely to make a nomination. Employers with such an outlook probably already have a superannuation scheme in place for their employees.
- Employers who do not currently have a superannuation scheme are unlikely to make a nomination. For those employers, the absence of a superannuation scheme probably reflects a view that retirement is a matter of personal choice/responsibility for employees and not a matter in which the employer should interfere.
Q: Should an employer permit salary sacrifice arrangements?
A: Salary sacrifice arrangements typically involve an agreement between employee and employer that:
- The employee's remuneration is reduced on a go-forward basis; and,
- The employer will make a contribution to the employee's superannuation scheme equal to the amount of salary sacrificed.
Although salary sacrifice arrangements have been around for several years, they have often been ignored by employees who perceive the potential tax savings as not justifying the sacrifice (for example, employees on a 33% marginal rate would typically save $5 tax for every $100 of salary sacrificed).
However, it is predicted that salary sacrifice arrangements will undergo a renaissance under KiwiSaver as an employee could potentially save up to $33 tax for every $100 sacrificed.
It is expected that many employees who enrol in KiwiSaver will request salary sacrifice arrangements with their employers. As there is likely to be little or no cost to an employer to enter into a salary sacrifice arrangement, it is likely that a large number of employers will permit employees to enter into salary sacrifice arrangements. As salary sacrifice arrangements become commonplace, it is expected that employees could shift their focus to "total remuneration" rather than current "salary plus benefits".