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KIWISAVER- VOLUNTARY EMPLOYER
CONTRIBUTIONS ABOVE EMPLOYER'S COMPULSORY CONTRIBUTIONS
From 1 April 2009 changes made to KiwiSaver include.
- The minimum employee contribution rate will reduce to 2% of a
member's gross pay. Employees can of course contribute greater
amounts.
- The compulsory employer contribution (CEC) will increase to 2% and
won't increase further in future years.
- Any voluntary employer contributions made will be liable for
employer superannuation contribution tax (ESCT) to the employer.
Voluntary employer contributions include any contributions employers
make:
- over and above the compulsory employer contribution rate
- to employees aged under 18 or over 65 years (and who have been a
member for more than five years), or
- to employees on a contribution holiday.
The calculation for ESCT couldnt be described as simple, but for those
employers who wish to make voluntary contributions, ESCT can be taxed in one
of the following ways:
- at a flat rate of 33 cents in the dollar, or
- at an optional ESCT rate based either
- on the annual gross salary or wages plus gross employer
contributions paid to the employee in the previous standard tax year
(where the employee was employed for all of that year), or
- on an estimate of the total amount of gross salary or wages
plus gross employer contributions that the employee will earn in the
year ahead (where the employee was not employed for all of the
previous tax year), or
- treat your employer contribution as salary or wages, for which
you'll need the agreement of your employee.
ESCT must be paid to Inland Revenue along with PAYE deductions on the
Employer deductions (IR345) form.
ESCT is not included on the Employer monthly schedule (IR348). The
amount shown as total KiwiSaver employer contributions on the EMS is the net
amount - the gross employer contribution less ESCT. The following examples
show what should be reported on the IR345 and what should be reported on the
EMS (IR348).
Examples:
Example 1: Employer contribution of 2%
Eddie is a KiwiSaver member and employed by ABC Limited. He is
having 4% of his salary and wages deducted as an employee contribution and
ABC Limited contributes 2%.
Eddie's weekly salary is $900.
| KiwiSaver deduction |
$36.00 |
| Employer contribution |
$18.00 |
| Total savings |
$54.00 |
From 1 April 2009, as ABC Limited is making employer contributions
at the required rate of 2% it isn't liable for ESCT.
Example 2: Employer contributions of more
than 2%
Joanne is a KiwiSaver member employed by Black Limited. Joanne has 4%
of her salary and wages deducted as an employee contribution and Black
Limited has agreed, as part of her wage negotiations, to match the employer
contributions dollar for dollar. So Black Limited is contributing 4% as
employer contributions.
Joanne's weekly salary is $1,200. Currently she is saving:
| KiwiSaver deduction |
$48.00 |
| Employer contribution |
$48.00 |
| Total savings |
$96.00 |
From 1 April 2009, as Black Limited is making employer
contributions at more than the required rate, it will have to pay ESCT on
the voluntary amount. So, for the purposes of calculating the ESCT, the
savings are:
| KiwiSaver deduction |
$48.00 |
| Employer contribution (compulsory 2%) |
$24.00 |
| Employer contribution (voluntary 2%) |
$24.00 |
| Total savings |
$96.00 |
Black Limited is liable for ESCT on the 2% voluntary portion, $24.00.
Using the first payment option (a flat rate of 33 cents in the dollar), ESCT
is calculated as:
|
Ratio percentage = [residual income from previous year,
divided by GST taxable supplies from previous year] x 100.
$24.00 x $0.33 = $7.92 - ESCT to pay.
The voluntary employer contribution for Joanne is:
$24.00 - $7.92 = $16.08.
|
The amount of Joanne's savings would be:
| KiwiSaver deduction |
$48.00 |
| Employer contribution (compulsory 2%) |
$24.00 |
| Employer contribution (voluntary 2%) |
$16.08 ($24 less ESCT) |
| Total savings |
$88.08 |
Black Limited should also account for the $7.92 on its Employer deductions
form (IR345) form for ESCT and account for $40.08 on its EMS (IR348) as
KiwiSaver employer contributions
Example 3: Locked-in employment agreements
In some cases, where an employer is 'locked-in' to an agreement with
an employee for a set percentage of employer contributions, in order to meet
the terms of that agreement, the amount of employer contributions may need
to be grossed-up to ensure that the employee receives their full
entitlement.
Speedy is employed by 19 Limited. He is a member of KiwiSaver and his
current employment contract requires 19 Limited to contribute towards his
KiwiSaver savings at a rate of 4% (matching his own contributions of 4%).
Speedy earns $2,500 gross per week or $130,000 per annum. His weekly
savings are:
| KiwiSaver deduction |
$100.00 |
| Employer contribution |
$100.00 |
| Total savings |
$200.00 |
As 19 Limited is making employer contributions at more than the
required rate it will have to pay ESCT on the voluntary amount. So, for the
purposes of calculating the ESCT, the savings are:
| KiwiSaver deduction |
$100.00 |
| Employer contribution (compulsory 2%) |
$50.00 |
| Employer contribution (voluntary 2%) |
$50.00 |
| Total savings |
$200.00 |
19 Limited is liable for ESCT on the 2% voluntary portion of $50.00.
As 19 Limited has agreed contractually to contribute 4%, not 4% less
ESCT, it must now gross-up its voluntary employer contribution so that
Speedy retains the full 4%.
|
Using the first payment option (a flat rate of 33 cents in the
dollar),
the gross up calculation is as follows:
ESCT = 0.33 / (1 - 0.33) x
$50.00 = $24.63
|
The gross superannuation contribution of $124.63 is calculated by
adding the employer contribution amount received by the scheme provider,
$100.00, and ESCT on that amount, $24.63.
ESCT is deducted from the grossed-up contribution, leaving Speedy with
net savings of $100.00.
The employer contribution amount 19 Limited should include on its EMS
(IR348) is $100.00 ($50.00 compulsory contribution plus $50.00 voluntary
contribution in accordance with Speedy’s employment agreement). It should
include the grossed-up ESCT amount of $24.63 on the IR345.
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