What is a Kiwisaver? (And is It Compulsory?)

Being an employer in New Zealand is a multifaceted role. You're tasked with overseeing operations, managing teams, and strategising for growth. Among the many responsibilities you shoulder, payroll processing is a critical one. 

It's not just about ensuring that wages and salaries are paid out accurately and on time.

It's also about meeting obligations that extend beyond the pay cycle, and one of the key elements in this regard is KiwiSaver.

KiwiSaver isn't just another line item on a payslip. It's a vital component of your employees' long-term financial security. 

The more you know about KiwiSaver, the more you show commitment to the future of your team.

But the intricacies of KiwiSaver can be challenging. 

What are your responsibilities as an employer? How much should you contribute, and how are these contributions calculated? Can payroll software simplify this process for you?

In this blog post, we aim to answer these questions.

As an employee, you choose to contribute a percentage of your gross salary, and your employer is also required to contribute at least 3% of your gross earnings on top of your regular pay.

When you enrol in a KiwiSaver scheme, you'll have the option to select from various funds based on your risk tolerance and investment preferences. If you don't make a selection, you'll be automatically allocated to a default fund for the time being.

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• Assessing if your new employees are eligible for automatic enrolment
• Deducting KiwiSaver contributions from your employees' pay and forwarding them to Inland Revenue
• Making employer contributions and ensuring they are correctly calculated

Fulfilling these responsibilities has implications for not only your employees' futures but also your business' reputation and legal standing.

Are KiwiSaver Contributions Compulsory for Employers?

Yes, KiwiSaver contributions are compulsory for employers. If your employee is a member of a KiwiSaver scheme, you are required to contribute a minimum of 3% of their before-tax salary or wages.

Note: The default (minimum) employee contribution rate is 3% but can also be set at 4%, 6%, 8%, or 10%, should the employee choose to. 

Maintaining Records and Compliance

As an employer, it is your responsibility to maintain accurate records related to KiwiSaver deductions and contributions.

 To ensure compliance, make sure you:

• Keep thorough records of all employee contributions and deductions.
• Monitor any changes or updates to employee contribution rates.
• Provide Inland Revenue with accurate and timely information regarding KiwiSaver deductions and contributions.
  
  

How Do Employers Pay KiwiSaver Contributions on Behalf of Employees?

KiwiSaver member deductions and employer contributions are paid to Inland Revenue through the PAYE (Pay As You Earn) system. After receiving the contributions, Inland Revenue forwards them to the employee's chosen KiwiSaver scheme provider.

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• Always use your employee's gross pay in your calculations
• Contributions must be deducted at the rate chosen by the employee (3%, 4%, 6%, 8% or 10%)
• Ensure the chosen rate complies with the KiwiSaver regulations

Example 

Let's consider the company, XYZ Ltd., that employs Jane. Jane earns a gross salary of $78,000 per year and has chosen to contribute 4% of her gross salary to her KiwiSaver account.

• Employee's Contribution: Jane contributes 4% of her gross salary to her KiwiSaver. Thus, 4% of $78,000 amounts to $3,120. This will be deducted proportionally from each of her paychecks throughout the year.

• Employer's Contribution: XYZ Ltd. contributes a minimum of 3% of Jane's gross salary to her KiwiSaver. So, 3% of $78,000 equals $2,340. This will be added to Jane's KiwiSaver account over the year.

Now, let's consider the employer superannuation contribution tax (ESCT).

ESCT rates are dependent on the employee's income. Since Jane's annual income is $78,000, the ESCT rate applicable is 33%, according to the rates provided by Inland Revenue.

The ESCT payable on the employer's contribution would be 33% of $2,340, which equals $772.20. Therefore, the actual amount reaching Jane's KiwiSaver account as the employer's contribution would be $2,340 minus $772.20, = $1,567.80.

In total, Jane's KiwiSaver account will receive $4,687.80 ($3,120 from Jane and $1,567.80 from XYZ Ltd.) for the year.

A critical aspect for XYZ Ltd. is keeping precise records of these transactions. Clear, accurate records of KiwiSaver deductions, employer contributions, and ESCT payments are essential for compliance, audits, and providing proof of payment when required. 

A reliable payroll software like Employment Hero Payroll simplifies this process, enabling seamless calculations, timely payments, and impeccable record-keeping.

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• Automated Calculations: The software calculates KiwiSaver deductions automatically based on employee gross salaries, reducing the risk of errors and ensuring compliance.
• Real-Time Legislative Updates: Payroll software stays updated with the latest KiwiSaver legislation and compliance requirements, keeping your process in sync with current regulations.
• Integration Capabilities: Seamless integration with other company systems, such as HR management or accounting software, centralises employee information and simplifies KiwiSaver management.
• Accessibility: Cloud payroll software enables access and management of payroll information from anywhere, anytime, facilitating agile response to changes.
• Data Security: The software ensures secure and confidential storage of employee data, adhering to data protection standards.
• Reporting and Tax Filing: The generation of detailed reports on KiwiSaver contributions and easy end-of-year tax filing and reconciliation are significant benefits.

Using cloud payroll software can assist businesses in handling their KiwiSaver obligations, saving time, reducing errors, and supporting employee retirement savings.

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