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ESCT - Understanding Employer Superannuation Contribution Tax

ESCT is the tax paid to IRD deducted from the employer contributions to employee KiwiSaver and complying superannuation funds.

Updated: May 2024

If you are making contributions to your employees' KiwiSaver or complying superannuation schemes, the contribution needs to be taxed.  

In this article:

ESCT - Useful Things To Keep In Mind

  •  ESCT is a compulsory tax type paid on the employer contribution to an employee's KiwiSaver or complying superannuation fund. 
  • ESCT is based on the employee's total earnings (Gross before tax) and is a flat rate applied to the employer's contribution amount only.
  • This is filed separately to Inland Revenue.
  • The ESCT rate is set at the beginning of each financial year, or  the start of employment for a new employee. It is not updated with salary changes, but should be  reviewed 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 additional to wages (Default Scenario in our system)
    • ESCT is deducted under PAYE rules - most common for Total remuneration packages or so a higher rate is used to lower tax bills at the end of each year. 
      • The employee's written agreement is needed, and this can be withdrawn at any time.

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.

Over- or Under-Deducting ESCT

ESCT is based on an estimate of the employee's total income from all sources, plus the employer contributions. 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. An end of year tax bill can  occur when IRD includes earnings or income as part of 'total earnings', that the employee was unaware counted towards this amount.

What other sources of income can an employee have?

It could include 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?

IRD compares the PAYE plus ESCT paid for the employee with the PAYE that should have been paid on their total income each year. 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.
    1. Default KiwiSaver scenario:  Where 
      1. Employer contributes to KiwiSaver on top of the amount paid on wages.
      2. ESCT is calculated on and deducted from the employer contribution
      3. This is the compliant option for minimum-wage employees.
    1. Reduce gross wages by Employer Contribution - ESCT under PAYE:
      1. The employee’s pay rate includes the employer's contribution to KiwiSaver
      2. Any KiwiSaver contributions are already included in the hourly rate.
      3.  ESCT is included in the PAYE calculation. 
      4. The employer's and the employee's contributions sent to the KiwiSaver fund are the full contribution rates   
      5. This is not compliant if the hourly rate is the minimum-wage.
    2. KiwiSaver treated as gross, but in addition to gross - ESCT under PAYE:
      1. Employer contributes to KiwiSaver is on top of amount paid for wages.
      2. Contributions are taxed at the employee’s PAYE rate, not at flat ESCT 


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