It is an employer's responsibility to review all employees' ESCT - Employer Superannuation Contribution Tax thresholds at the 1st April each year. If you haven't already done this, we highly recommend that you review all employees rates, make changes and if necessary document your review/changes.
Determining the ESCT rate
The easiest way to determine your employee's ESCT rate is by combining their annual salary or wages and your gross annual KiwiSaver employer contributions. This is called the ESCT rate threshold.
How you work out the combined income (ESCT rate threshold) depends on how long the employee has worked for you.
Example
Daniel worked at Salon Jennie Ltd for the full tax year 1 April 2013 to 31 March 2014.
His total salary of $65,000 plus employer contributions paid during the year of 3% ($1,950) combine to make a total of $66,950. This is Daniel's ESCT rate threshold amount.
Because his total salary plus employer contributions was between $57,601 and $84,000, his ESCT rate is 30%.
Example
Salon Jennie Ltd hires Max on 1 October 2013. Max's contract says he will receive a salary of $30,000 and employer contributions of $900 a year.
The company estimates Max's ESCT rate, based on the amount of salary or wages plus gross employer contributions he will earn in the remainder of the tax year (1 October 2013 to 31 March 2014). See "Note" below.
Because the estimate of $15,450 is between $0 and $16,800, the ESCT rate is 10.5%.
Note: If an employee was only employed for three months, the employer would estimate the employee's earnings in those three months and base the ESCT rate on that estimation.
The calculated ESCT rate is used for all employer contributions made in the current tax year. If your employee's salary or wage increases or decreases during the current tax year don't adjust their ESCT rate. Update any change at the start of the following tax year.
In some cases an employer may be "locked in" to an employment agreement where they contribute a set percentage of their employee's salary. It may be necessary to gross up the employer contribution so the employee receives their full entitlement. Calculate the tax using this formula:
ESCT = a divided by (1 minus a) multiplied by b
where:
Calculating ESCT
When you've worked out the ESCT deduction rate, you'll be able to calculate and make the deduction from the employee's gross employer contribution for that pay period. The easiest way to work out the ESCT is to use the IRD PAYE / KiwiSaver deductions calculator.
Use the IRD PAYE / KiwiSaver deductions calculator to work out the ESCT deductions
If you are manually working out the ESCT amount please note that ESCT is calculated on each whole dollar of the employer contribution. Example:
Salary $65,000pa, weekly gross $1,250, Employer Contribution (3%) $37.50
ESCT Threshold for $57,501 to $84,000 = 30%)
$37 (Whole dollars) x 30% = $11.10 ESCT
Employer KiwiSaver net = $37.50 less ESCT $11.10 = net $26.40
For further information please refer to http://www.ird.govt.nz/payroll-employers/make-deductions/deductions/super-contributions/esct.html
If you require any assistance, please don't hesitate to contact the Accounted4 Payroll Team
Anne Bland Email anne.b@accounted4.co.nz Extension 831
Carolyn Lawrence Email carolyn.l@accounted4.co.nz Extension 837
Maree Craig Email maree.c@accounted4.co.nz Extension 825
Determining the ESCT rate
The easiest way to determine your employee's ESCT rate is by combining their annual salary or wages and your gross annual KiwiSaver employer contributions. This is called the ESCT rate threshold.
| Employee's salary or wage income for year ended 31 March (including gross superannuation employer contributions) | ESCT from 1 April |
| $0 to $16,800 | 10.5% |
| $16,801 to $57,600 | 17.5% |
| $57,601 to $84,000 | 30% |
| $84,001 upwards | 33% |
Employee worked for you the entire previous tax year (1 April to 31 March)
The total salary or wage the employee received, plus the gross employer contributions paid in that year, is the ESCT rate threshold amount.Example
Daniel worked at Salon Jennie Ltd for the full tax year 1 April 2013 to 31 March 2014.
His total salary of $65,000 plus employer contributions paid during the year of 3% ($1,950) combine to make a total of $66,950. This is Daniel's ESCT rate threshold amount.
Because his total salary plus employer contributions was between $57,601 and $84,000, his ESCT rate is 30%.
Employee worked for you for part, or none, of the previous tax year
Estimate their total salary or wage, plus the employer contributions you'll make to them in the current income year, as the ESCT rate threshold amount.Example
Salon Jennie Ltd hires Max on 1 October 2013. Max's contract says he will receive a salary of $30,000 and employer contributions of $900 a year.
The company estimates Max's ESCT rate, based on the amount of salary or wages plus gross employer contributions he will earn in the remainder of the tax year (1 October 2013 to 31 March 2014). See "Note" below.
| Salary | $30,000 |
| Employer contributions | $900 |
| Total | $30,900 |
| $30,900 divided by 12 months | $2,575 |
| $2,575 multiplied by 6 months | $15,450 |
Note: If an employee was only employed for three months, the employer would estimate the employee's earnings in those three months and base the ESCT rate on that estimation.
The calculated ESCT rate is used for all employer contributions made in the current tax year. If your employee's salary or wage increases or decreases during the current tax year don't adjust their ESCT rate. Update any change at the start of the following tax year.
In some cases an employer may be "locked in" to an employment agreement where they contribute a set percentage of their employee's salary. It may be necessary to gross up the employer contribution so the employee receives their full entitlement. Calculate the tax using this formula:
ESCT = a divided by (1 minus a) multiplied by b
where:
- a is the rate of ESCT, and
- b is the actual amount paid to the fund.
ESCT and secondary jobs
The ESCT rate is worked out for each employer, rather than the employee's total combined income from all sources. You don't need to ask your employee how much they're earning from their other jobs, simply work out their ESCT rate threshold based on how much you've paid them.Calculating ESCT
When you've worked out the ESCT deduction rate, you'll be able to calculate and make the deduction from the employee's gross employer contribution for that pay period. The easiest way to work out the ESCT is to use the IRD PAYE / KiwiSaver deductions calculator.
Use the IRD PAYE / KiwiSaver deductions calculator to work out the ESCT deductions
If you are manually working out the ESCT amount please note that ESCT is calculated on each whole dollar of the employer contribution. Example:
Salary $65,000pa, weekly gross $1,250, Employer Contribution (3%) $37.50
ESCT Threshold for $57,501 to $84,000 = 30%)
$37 (Whole dollars) x 30% = $11.10 ESCT
Employer KiwiSaver net = $37.50 less ESCT $11.10 = net $26.40
For further information please refer to http://www.ird.govt.nz/payroll-employers/make-deductions/deductions/super-contributions/esct.html
If you require any assistance, please don't hesitate to contact the Accounted4 Payroll Team
Anne Bland Email anne.b@accounted4.co.nz Extension 831
Carolyn Lawrence Email carolyn.l@accounted4.co.nz Extension 837
Maree Craig Email maree.c@accounted4.co.nz Extension 825
