KiwiSaver Contributions - Gross or Net?
KiwiSaver contributions can be confusing and it’s a common question to ask if your contribution (and your employer’s 3% contribution) is calculated on your gross salary or salary after tax - in this guide, we explain everything you need to know
Updated 19 July 2024
Summary:
This is best explained is an example:
Summary:
- Employee KiwiSaver contributions are paid after tax; effectively money what would have gone to your bank account is paid instead into your KiwiSaver fund.
- Employer KiwiSaver contributions are paid before tax; how much tax you pay depends on your income.
This is best explained is an example:
- if you contribute 3% to your KiwiSaver and your gross salary each week is $1,500 ($78,000 a year), you’ll pay around $341 a week in PAYE and ACC. $45 (3% of $1,500 salary) is contributed to your KiwiSaver fund. Your tax-home pay will be around $1,114.
- Running parallel to your personal KiwiSaver contribution is your employer’s contribution. Your employer will also contribute $45 to your KiwiSaver (3% on $1,500 gross salary). However, the IRD taxes this usingEmployer superannuation contribution tax (ESCT), so applying the 30% rate (as you earn between $57,601 - $84,000), you’ll lose $13.50 to tax. The remaining $31.50 will be added to your KiwiSaver fund. This is known as the "net employer superannuation contribution".
KiwiSaver Contributions Explained in Detail
How KiwiSaver is taxed - and what portion of your salary you get to keep
- To make things simple, both your salary contribution (known as the ‘employee contribution’) and the employer's contribution are calculated on your gross salary.
- Gross salary includes allowances, bonuses, commission, extra salary, overtime, gratuities and remuneration of any kind (before tax).
- Let’s take an example. If your base salary is $40,000, but you earn $10,000 in overtime, $5,000 of commission and $5,000 as a bonus, your gross salary is $60,000. Your employer and employee contributions (and tax rates) are then calculated on this amount.
How do KiwiSaver deductions work in practice, and where does tax come in?
- Your employee contributions, calculated on your gross income, are deducted from your net income (after PAYE is deducted). This means that the total PAYE you pay won’t be affected by your KiwiSaver contributions. In simple terms, the amount is re-directed from your bank account to your KiwiSaver fund given you’ve paid tax already.
- Your employer’s contributions are also taxed, and the rate is based on how much you earn. The tax rate ranges from 10.5 per cent to 33 per cent, depending on how much you earn per year. This is called Employer superannuation contribution tax (ESCT) is deducted before the money is paid to an employee’s KiwiSaver fund. These are presented in the table below:
Employee’s annual income |
Employer superannuation contribution tax (ESCT) rates |
$0 to $16,800 |
10.5% |
$16,801 to $57,600 |
17.5% |
$57,601 to $84,000 |
30% |
$84,001 to $216,000 |
33% |
$216,001+ |
39% |
Source: Business.govt.nz
Let’s walk through some simple examples:
Let’s walk through some simple examples:
- You earn $100,000 a year. Using our PAYE calculator, we look at three examples of contributions in the table below – no contribution, 3% or 6%.
- In all cases, the employer contribution was 3%. This means that it will be taxed at 33%, because the annual salary ($100,000) falls into the highest ESCT rate.
- Your employer forwards all KiwiSaver money to the IRD, who then takes its share (i.e. tax). What is left over is invested into your KiwiSaver fund.
Employer KiwiSaver Contributions and Tax
In another example, if you contribute 3% to your KiwiSaver and your gross salary each week is $1,500 ($78,000 a year), you’ll pay around $341 a week in PAYE and ACC. $45 (3% of $1,500 salary) is contributed to your KiwiSaver fund. Your tax-home pay will be around $1,114.
Running parallel to your personal KiwiSaver contribution is your employer’s contribution. Your employer will also contribute $45 to your KiwiSaver (3% on $1,500 gross salary). However, the IRD taxes this using ESCT, so applying the 30% rate (as you earn between $57,601 - $84,000), you’ll lose $13.50 to tax. The remaining $31.50 will be added to your KiwiSaver fund. This is known as the "net employer superannuation contribution".
Be aware: The above process happens when your employer takes a "pay + benefits" approach to your KiwiSaver contributions, i.e. their contribution is paid on top of your gross pay. However, some employers prefer to offer what is known as "total remuneration". You can read more about – as outlined by the IRD here. In these circumstances, the employee and employer have agreed to treat the employer contribution as salary or wages under the PAYE rules. By doing this, tax benefits like Working for Families, Accommodation Supplement, Student Loan Repayments and Child Support can be affected (negatively) as you are seen to earn more salary, and therefore pay obligations and/or can claim fewer benefits).
Running parallel to your personal KiwiSaver contribution is your employer’s contribution. Your employer will also contribute $45 to your KiwiSaver (3% on $1,500 gross salary). However, the IRD taxes this using ESCT, so applying the 30% rate (as you earn between $57,601 - $84,000), you’ll lose $13.50 to tax. The remaining $31.50 will be added to your KiwiSaver fund. This is known as the "net employer superannuation contribution".
Be aware: The above process happens when your employer takes a "pay + benefits" approach to your KiwiSaver contributions, i.e. their contribution is paid on top of your gross pay. However, some employers prefer to offer what is known as "total remuneration". You can read more about – as outlined by the IRD here. In these circumstances, the employee and employer have agreed to treat the employer contribution as salary or wages under the PAYE rules. By doing this, tax benefits like Working for Families, Accommodation Supplement, Student Loan Repayments and Child Support can be affected (negatively) as you are seen to earn more salary, and therefore pay obligations and/or can claim fewer benefits).
