The Employer Superannuation Contribution Tax (ESCT) is the tax you pay on the cash contributions you make to an employee's superannuation accounts, including KiwiSaver. Please find below responses to the most frequently asked questions regarding the ESCT rate update process.

Glossary

• What are the ESCT rates?
• What needs to be done with the ESCT report?
• How is the 'Estimated Gross' amount determined?
• When do I have to update employee ESCT rates?

Frequently asked questions

  What are the ESCT rates?  

Employer contributions to superannuation schemes are subject to employer superannuation contribution tax (ESCT). For KiwiSaver, this means you pay ESCT on your compulsory 3% employer contribution and any voluntary extras,  but not on the contributions deducted from your employees' wages or salary. The ESCT rate is calculated based on the employee's ESCT threshold, as follows:

The ESCT Threshold is the total of the employee's gross salary, plus any superannuation contribution paid by the employer to KiwiSaver, or any other superannuation fund in the previous tax year, i.e. the 1st April to the 31st March. If the employee only worked part of the previous tax year, their ESCT rate will be based on their estimated salary and wages for this income year, plus your estimated total employer cash contributions. 

You will recalculate the ESCT rate at the beginning of the financial year for existing employees based on their estimated annual salary. The same recalculation will occur if it is a new employee part way through the year. It is calculated using estimated annual salary, but there is no recalculation mid way through the year.

  What needs to be done with the ESCT report?  

Before the start of the new tax year, you must review the employee ESCT rates and update as required. You can apply a bulk update of rates using the ESCT Rate Report. You can access this report via the Reports IRD Reporting section. You can only access IRD Reporting to businesses who have completed their IRD Settings information.

The first section of the ESCT Rate report provides the estimated and actual employee's gross salary, superannuation contributions and ESCT rate applied for the current tax year. The next section provides the estimated employee's gross salary, superannuation contribution, current ESCT rate, and recommended ESCT rate for the next tax year.

You can determine the recommended ESCT rate based on the total amount of gross wages plus employer contributions that the employee is estimated to earn in the tax year ahead. Although the report provides the recommended rate, you can choose to override this by clicking on the dropdown field and selecting a different rate from the list. 

To update an employee's ESCT rate for the next tax year, simply click on the checkbox to the left of the employee name and then click on Update Selected Employees button. A message will display on your screen confirming the update to the employee's ESCT rate.

You can bulk update all employees by clicking on the first checkbox to the left of the Name header and then clicking the Update Selected Employees button. Any incomplete employees and/or employees terminated before the new tax year will not appear in the report.

  How is the 'Estimated Gross' amount determined?  

The salary data entered in the employee's Pay Run Defaults screen is used to determine the estimated gross amount. Specifically:

• If an employee's Pay Rate is per hour, the formula used is the hourly rate x hours per week x 52;
• If an employee's Pay Rate is per day, the formula used is the day rate x 5 days per week x 52;
• If an employee's Pay Rate is per annum, the employee's entered salary will be referenced.

  When do I have to update employee ESCT rates?  

You can choose to update your employees' ESCT rates using this report at any time before the new tax year begins, even if there are unfinalised pay runs for the current tax year. Take note that the updated ESCT rate will only take effect on the first pay run with a date paid on or after the 1st April.

At this stage also is when the employee's ESCT rate will update in their Pay Run Defaults screen. Before this occurring, you will notice a warning message beneath the ESCT Rate field for the employee. The warning message confirms that you have scheduled a rate to update and so you do not have to update again using the report. 

You must have the rates updated before creating the first pay run for the new tax year. Otherwise, you may have a scenario where an employee's ESCT rate is under/over calculated. If you do update after the first pay run in the new tax year has been finalised, the rates will update in the next pay run created for that new tax year.

You can also manually change an employee's ESCT rate at any time via their Pay Run Defaults screen. To do this, click the Override ESCT Rate checkbox and then select the rate from the dropdown list. Take note that if you do change a rate using this method, the employee's new ESCT rate will apply in the next pay run created after the update, regardless of the tax year the pay run falls into.