Employee and employer contribution rates

Clause 7 of schedule 28 of the Income Tax Act 2007, and sections 64 and 101D of the KiwiSaver Act 2006

The new legislation introduces an increase in the default and minimum KiwiSaver employee contribution rate, and the compulsory employer contribution rate, from 2% to 3%, as announced in Budget 2011.

Key features

• The default and minimum employee contribution rate will rise from 2% to 3% of gross salary or wages from 1 April 2013. This new default and minimum rate will apply to existing as well as new members.
• The 3% rate also applies to employee contributions to complying superannuation funds.
• The compulsory employer contribution rate will increase from 2% to 3% from 1 April 2013.

Detailed analysis

Employee contributions

Employers are required to make deductions of KiwiSaver employee contributions from the salary or wages paid to employees aged over 18 who are members of KiwiSaver unless:

• the employee has taken a KiwiSaver contributions holiday; 
• the employee is over 65 and has reached their end-payment date and provided a non-deduction notice; or
• in accordance with the PAYE rules, no tax deduction is required to be made from the payment of the salary or wages at the time the payment is made.

Employees can currently choose their KiwiSaver employee contributions to be deducted at 2% (the minimum rate), 4% or 8% of their gross salary or wages. Employees who do not select their own contribution rate have a default rate of 2%.

The default and minimum employee contribution rate will increase from 2% to 3% for payments of salary and wages for pay periods that start on or after 1 April 2013. The 3% contribution rate will apply to existing members currently using the 2% minimum or default rate, and to all new members who join the scheme after that date.

Employees still have the option to select a higher contribution rate of 4% or 8% and employees already contributing at these higher rates will continue to do so.

Employer contributions

Employers are also required to make compulsory employer contributions for each employee for whom they are making deductions of KiwiSaver employee contributions unless:

• the employer is already paying into another eligible registered superannuation scheme for that employee; or
• the employee is aged under 18; or
• the employee is aged over 65 years and has reached their end-payment date.

The compulsory employer contribution rate is currently 2%. This rate will increase to 3% for payments of salary and wages for pay periods that start on or after 1 April 2013.

Application date

The new minimum and default employee rate of 3% applies for payments of salary and wages for pay periods that start on or after 1 April 2013.

The new compulsory employer rate of 3% applies for payments of salary and wages for pay periods that start on or after 1 April 2013.