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How Much Can Employers Contribute To KiwiSaver?

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Contributor:
Mary Holm
Mary Holm

Question:

Does the employer contribution to KiwiSaver have to equal 1 or up to 4 per cent, or can a dollar amount be nominated by the employer?

For example, can an employer nominate $1043 per year when this amount is more than the compulsory 1 per cent but may not equal 2 per cent? As an employer I am just trying to maximise the subsidy for our employees.

Obviously this only works for the 2008-09 financial year.

Answer:

Mary Holm: An employer can contribute any amount to an employee's KiwiSaver account, as long as it is at least the compulsory amount.

But it's not correct that this works only this coming year. It will keep working for several years for lower paid employees.

In 2009-10, for example, employers will have to contribute 2 per cent of pay. For employees earning more than $52,000, 2 per cent of their pay will be more than $1,043. But for everyone on lower pay, it would be good if you contribute $1,043 - which for them will be more than 2 per cent.

In 2010-11, the compulsory contribution is 3 per cent and the salary cutoff point is $34,767. And from April 2011, the compulsory contribution is 4 per cent and the salary cutoff is $26,000.

However, the situation is a little trickier with employees who earn less than $26,000, because of withholding tax complications.

One of the advantages of KiwiSaver is that employers don't have to make Specified Superannuation Contributions Withholding Tax (SSCWT) payments on their contributions - up to a maximum contribution of 4 per cent of each employee's pay or the employee's contribution, whichever is less.

For people earning less than $26,000, $1043 is more than 4 per cent of their pay. So any money an employer contributes above 4 per cent will be subject to withholding tax. That means the employee will receive less.

It's still free money from the government, but some employers might baulk because of the hassle, and prefer to limit their contribution to 4 per cent of pay.

 

Mary Holm is the author of bestselling books on KiwiSaver and personal finance. She is also a highly praised seminar presenter. Her written advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following that advice.  

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