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      ESCT - Understanding Employer Superannuation Contribution Tax

      ESCT is a tax type paid to IRD deducted from the employer contributions to employee KiwiSaver and complying superannuation funds. Let's find out more

      Updated: May 2024

      If you are making contributions to your employees' KiwiSaver or complying superannuation schemes, the contribution needs to be taxed. This tax is called ESCT. Let's find out more about this tax type.

      In this article:

      ESCT - Useful Things To Keep In Mind

      • Like PAYE, ESCT is a compulsory tax type paid on the employer contribution to an employee's KiwiSaver or complying superannuation fund. 
      • ESCT rate is based on the employee's total earnings (Gross before tax). It is a flat rate deduction applied to the employer's contribution amount only.
      • This is paid and filed separately to Inland Revenue.
      • The ESCT rate is calculated and set at the beginning of each financial year, or at the start of employment for a new employee for that financial year. It is not updated with salary changes, but is re-calculated at the beginning of the next financial year.
      • An employee, or IRD can request that ESCT be calculated at a higher rate. You can update this rate at any time to comply with this request.
      • There are two ways to deduct ESCT:
        • ESCT is deducted from each employer contribution - KiwiSaver is not treated as wages (Default Scenario in our system)
        • ESCT is deducted under PAYE rules - Total remuneration package for KiwiSaver (ESCT becomes PAYE scenarios - we have two options in the system)
          • The employee's written agreement is needed, and this can be withdrawn at any time.
          • This is not compliant for employees on minimum wage.
      Take Care - Red Block Using a total remuneration package for KiwiSaver for a minimum-waged employee is not compliant as the deduction for the employer contribution will drop the remuneration below the minimum wage threshold.

      Over- or Under-Deducting ESCT

      The rate for calculating ESCT is based on an estimate of the employee's total salary and wages from all sources, plus the employer contributions combined. An employer can ask the employee their estimated total income range for calculating ESCT, but the employee doesn't have to provide a definite figure. A miss-estimation can also occur when IRD includes earnings or income from other sources as part of 'total earnings', that the employee was unaware counted towards this amount.

      What other sources of income can an employee have?

      Employees may have income from many sources, including the following examples: ACC payments, interest, dividends, royalties and allowances, work and home income, other employment, and rental income.

      What if our estimation was wrong and I've over-/ under-deducted ESCT?

      At the end of the finanical year, IRD compares the PAYE plus ESCT paid for the employee with the PAYE that should have been paid on their total income. If ESCT has been over-/ under-deducted, there may be an amount to pay or refunded.

      Info - Blue Block (1)The employee may request that ESCT be calculated at a higher rate to avoid a tax bill. The employer can update this rate at any time to comply with such a request.

      Updating Employee ESCT Rates in Thankyou Payroll

      ESCT rates are selected in the Employee Profile - KiwiSaver tab for each employee.

      Let's take a look at updating ESCT deductions:

      KS_ESCT_RateSelection

      1. Fill in the contribution rates. Do not enter the % sign.
      2. This is where you select the ESCT rate based on your employee's total earnings from all sources.
        1. This is an income bracket estimate, as discussed above.
        2. If the employee or IRD requests a higher rate, simply select the rate requested here.
      3. This is where you select how ESCT will be treated. The law allows for two options: ESCT deducted from each employer's contribution, or ESCT deducted under PAYE rules. Let's look at each option:
        1. Default KiwiSaver scenario: ESCT is deducted from each employer's contribution. This is the system default as it is most often used.
          1. ESCT is calculated and shown as a separate amount in the pay summary and employee payslip.
          2. The ESCT and employer's contributions do not come out of the employee's take-home pay.
          3. This is the compliant option for minimum-wage employees.
        2. Reduce gross wages by Employer Contribution - ESCT under PAYE:
          1. Any KiwiSaver contributions are already included in the hourly rate, so the employee's gross is the same whether they contribute to KiwiSaver or not.
            - If employees contribute the KiwiSaver, the ESCT is included in the PAYE calculation. * The employer's and the employee's contributions are both deducted from the employee's take-home pay.
            - If the employee doesn't contribute, their take-home pay is more. This does not promote contributing to KiwiSaver.
          2. There is no ESCT shown on the pay summary or payslip as it is a part of the PAYE.
          3. This is not compliant for minimum-wage employees
        3. KiwiSaver treated as gross, but in addition to gross - ESCT under PAYE:
          1. Employer contribution is over and above the employee's standard pay. 
          2. There is no ESCT shown on the pay summary or payslip as it is taxed under PAYE.
          3. This is compliant for minimum-wage employees, as the employer is contributing over and above their standard pay rate.

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