Employers now tied into KiwiSaver

Matt McGoldrick, Solicitor | Friday 25 May 2007

Compulsory matching employer contributions to KiwiSaver signal a significant change to the shape of the New Zealand workplace.

The Budget delivered a range of KiwiSaver modifications, the most significant being the requirement for employers to begin matching their employees’ contributions to KiwiSaver from 1 April 2008.

While KiwiSaver was widely expected to be a recruitment and retention drawcard, the Budget moves have made KiwiSaver a new tool in employment agreements and remuneration structures.  This will be particularly important for employers currently offering other forms of superannuation.

With matching employer contributions on the way, employees may decide KiwiSaver is now more worthwhile. Employers now need to factor KiwiSaver into salary and wage structures and how to maximise this for attracting and retaining the highest quality staff.

To summarise the Budget changes.

• From 1 April 2008, every employer must match an employee's contribution, beginning with 1% contribution in 2008 and increasing by 1% each year to a cap of  4% in 2011.
  
  
• From 1 April 2008, employer contributions to KiwiSaver will be eligible for a matching employer tax credit, up to a maximum of $20 per week per employee.  In effect, employers are provided with a tax-based incentive to contribute.  Employer contributions to a KiwiSaver scheme (or a superannuation scheme that complies with the requirements of KiwiSaver) remain exempt from Specified Superannuation Contribution Withholding Tax, to a cap of the lesser of an employee's contribution or 4% of an employee's gross salary.
  
  
• From 1 July 2007, contributing employees will also receive a tax credit on their contributions, up to a maximum of $20 per week, paid directly into their KiwiSaver account. 
  
  
• An employee who is a member of a KiwiSaver scheme will receive an annual subsidy of $40 towards the fees for their particular scheme.
  
  
• From 1 April 2008, employer contributions cannot count towards the minimum 4% employee contributions for new employees or those who opt into the scheme (subject to various transitional rules).  In essence, from this date, employers and employees cannot combine   their contributions to make a total figure of 4%, as employer contributions will be required to be over and above an employee’s contribution.
  
  This means that from 1 April 2008 if an employee is contributing at the minimum level of 4%, the minimum annual contribution (both employee and employer) will be 5%.  On and from 1 April 2011, total minimum contributions to KiwiSaver will be 8%.
  
  
• For employers, there is only one change that will occur on 1 July 2007 (the intended start date for KiwiSaver) which requires action – from this date any intended employer contributions are to be paid through Inland Revenue.  This particular change will only apply to those employers intending to make voluntary contributions. 
  
  

Employers should continue their current implementation processes.

The Government's aims for KiwiSaver are quite clear and in a tight labour market, attracting and retaining staff becomes much more important.

Bell Gully has the expertise to advise on how to maximise the benefits of KiwiSaver to your company and employees. For more advice, contact the Bell Gully team.

For further information, please contact your usual Bell Gully advisor or:

AUCKLAND

Rob Towner
Partner

WELLINGTON

Andrew Scott-Howman
Partner

Maria Berryman
Senior Associate

Rachael Brown
Senior Associate

Matt McGoldrick
Solicitor