Subpart 1 - Deductions of contributions from salary or wages

KiwiSaver Act 2006 - subpart 1 provides for automatic deductions of KiwiSaver contributions to be made from the salary or wages paid to employees.

Subpart 1 provides for automatic deductions of KiwiSaver contributions to be made from the salary or wages paid to employees.

Payments of salary or wages to which deduction rules apply

An employer is required to make deductions of KiwiSaver contributions from the salary or wages paid to employees when:

  • an employee has started new employment and the automatic enrolment rules apply;
  • an employee has opted in to KiwiSaver by giving their employer a notice requiring deductions of contributions; or
  • the Commissioner has given the employer a notice requiring the deduction of contributions from the employee's salary or wages.

Section 60 requires deductions from:

  • the first payment of salary or wages after an employee starts new employment; or
  • the next payment of salary or wages calculated after the employer receives notice from the employee or the Commissioner requiring the deduction of contributions.

The Commissioner may give a notice to the employer under section 61 requiring the deduction of contributions to achieve the effect of the automatic enrolment rules or the rules regarding opt-in by employees.

An employer is not required to make deductions of contributions from a payment of salary or wages under section 62 if:

  • the employee has opted out (either via the employer or via the Commissioner and the Commissioner has given notice to the employer);
  • the employee has shown their employer a notice of a contributions holiday, or the Commissioner has notified the employer of a contributions holiday, for so long as the employer is satisfied that the employee is on that contributions holiday; 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.

Section 63 states that Part 3 also applies to PAYE intermediaries.7

Contribution rate

Section 64 sets out the contribution rate, which (in relation to an employee and to an employer and to each payment of salary or wages) is:

  • 4% of the employee's gross salary or wages (the default rate if no contribution rate is provided); or
  • 8% of the employee's gross salary or wages, if the employee gives his or her employer a notice requiring contributions to be deducted at that rate.

The employee can change their contribution rate (from 4% to 8% or from 8% to 4%) by giving notice to their employer of the new rate. Employees may not change their contribution rate at intervals of less than three months apart in relation to an employer, unless the employer agrees.

In accordance with section 65, the contribution rates may be altered and additional contribution rates may be provided for by the Governor-General by Order in Council.8 The Order in Council must specify:

  • the date the new contribution rate(s) applies from - any change must apply from the first day in a tax year;
  • how the contribution rates apply to employees who are already KiwiSaver members (for example, if the default contribution rate was reduced to 2%, the Order in Council would have to specify whether that rate then applied to employees who were on a contribution rate of 4%).

Such Orders in Council expire after 12 months unless the Order in Council is expressly validated and confirmed by an Act passed before the expiry date.

Obligation to make deductions

Under section 66 employers are required to make deductions from each payment of the employee's salary or wages of an amount equal to the contribution rate. Employees can choose if employer contributions count towards the contribution rate as long as those contributions vest immediately in the employee.

If employer contributions count towards the contribution rate, the employer must make deductions of contributions from each payment of the employee's salary or wages equal to the contribution rate minus the gross amount of the employer contribution.9

PAYE rules apply to deductions

Section 67 specifies that certain parts of the PAYE rules of the Income Tax Act apply to the deduction of KiwiSaver contributions. The effect is that:

  • employers must deduct and record contributions at the same time and in the same way as they deduct and record PAYE; and
  • employers must pay contributions deducted to the Commissioner at the same time as they on-pay PAYE deductions.
Example one
Jack is automatically enrolled in KiwiSaver and earns a salary of $50,000, payable weekly. Jack does not give his employer notice requiring deductions at 8%. His employer is required to deduct contributions of $38.46 per week (4% of his weekly salary of $961.54). Jack opts out of KiwiSaver via his employer. His employer is no longer required to make deductions of KiwiSaver contributions and can refund contributions already deducted but not on-paid to Inland Revenue directly to Jack. If the employer does not refund the contributions, they must be on-paid to Inland Revenue at the time the next employer monthly schedule is required to be sent. If the contributions are on-paid to Inland Revenue, the employer monthly schedule must show those deductions of contributions from Jack's salary.

Money paid for things other than retirement benefits

The Act does not prohibit money being paid to providers for things other than retirement benefits (such as life insurance). However, under section 68 money that is paid for things other than retirement benefits cannot count towards the contribution rate and cannot be paid via the Commissioner. In addition, there is no requirement on employers to made deductions from salary and wages for payment of other things.

Example two
Anna's KiwiSaver scheme offers a life insurance package. Her employer deducts 2% of her salary and on-pays it directly to the scheme so that Anna is entitled to the life insurance benefits. The 2% deduction does not count towards the minimum contribution rate. Anna has a further 4% deducted from her salary which is paid via Inland Revenue to her scheme.

Where deductions are made but not on-paid to the Commissioner

If the Commissioner is satisfied that a deduction has been made in a PAYE period by an employer and the amount of the deduction is not paid to the Commissioner by the date on which the deduction is required to be paid, the amount of the deduction is treated under section 69 as having been received on the 15th of the month in which the deduction is made.

The government will make good such amounts deducted and on-pay the contribution to the provider, and recover the non-payment from the employer.

Where deductions are received by the Commissioner but cannot be identified

Under section 70, if the Commissioner receives a deduction of KiwiSaver contributions from an employer who has failed to supply the particulars required in relation to the amounts deducted, and the Commissioner is unable to ascertain the particulars in sufficient time before the cut-off day for on-payments to the KiwiSaver providers, the Commissioner may hold the received amount until the amount attributable to each person from whom a deduction was made has been established.

Section 71 requires such an amount to be treated under the Act (except for the provisions regarding interest on contributions and home ownership withdrawal) as not having been received by the Commissioner until the day on which the amount attributable to each person has been established to the satisfaction of the Commissioner.

7 As defined in section OB 1 of the Income Tax Act, who are acting under subpart NBA of Part N of the Income Tax Act as if references to the employer were a reference to the PAYE intermediary and with other necessary modifications.
8 The Act gives an Order in Council the force of law as if it were enacted by the KiwiSaver Act itself.
9 An employer contribution is a contribution made, during the same PAYE period as the payment of salary or wages to the employee, as a specified superannuation contribution within the meaning of section OB 1 of the Income Tax Act to the employee's KiwiSaver scheme on behalf of the employee.