KiwiSaver – Clarity About Employer Contributions And Employee Remuneration

The legislation giving effect to the changes to KiwiSaver that were announced in Michael Cullen’s 2007 Budget have finally been passed.  Many employers have already taken steps to try to ensure that their contributions are paid as part of (not in addition to) their employees’ remuneration packages – these steps may now need to be reconsidered.

The Taxation (KiwiSaver) Act 2007 received Royal Assent on 19 December 2007 and, among other things, deals with how the compulsory employer contributions and employer tax credits are to be managed by employers.

The key changes are:

• From 1 April 2008, employers are required to make compulsory contributions to employees' KiwiSaver schemes if the employees are 18 years or over and they are having contributions deducted from their salary or wages.  Contributions made to existing superannuation schemes count as compulsory employer contributions if certain conditions are met.

• A tax credit is available to employers to help offset the costs of making compulsory employer contributions to an employee's KiwiSaver scheme or a compulsory superannuation fund.  The tax credit will be the lesser of the employer's contribution, or $20 per week for each employee.  The employer tax credit applies to employer contributions made to a KiwiSaver scheme or a complying superannuation fund from 1 April 2008.

The level of the compulsory employer contributions will be phased in over four years as follows:

Under the original KiwiSaver rules, it was possible for an employer and employee to agree that the employer contributions would be included as part of the employee's 4% or 8% contribution.  Under the Act, employer contributions can now only be made on top of an employee's 4% or 8% contribution rate.  This means that:

• Until 31 March 2010 employers and their employees can contribute 2% each;
• From 1 April 2010 employers and their employees must contribute 3% each;
• From 1 April 2011 onwards employers and employees must contribute 4% each.

The Act requires compulsory employer contributions to be paid in addition to an employee's gross salary or wages.  This rule will apply despite any previous contractual agreement an employer has already made with any employee before 13 December 2007.  However, from that date, employers and employees (or unions) are free to negotiate and agree in good faith as to how compulsory employer contributions will be funded (i.e. they may agree that the employee's total remuneration includes any compulsory contributions that their employer is required to make). 

If you have any questions about these newly enacted provisions, particularly about what steps you should now take if you have already made arrangements with your employees about employer contributions, please do not hesitate to contact us. 

For more information, please contact:

Erin Davies
Partner
t: +64 9 979 2177
m: +94 29 622 2300
e: Erin Davies

Last updated: 30 January 2008