The kiwisaver “pay increase” and what you need to consider (May 25)

Hi Guys

Well the government announced that compulsory employer contributions to Kiwisaver will increase to 4% over the next 2 years.  This no great surprise, and actually about 15 years later than expected.  When Kiwisaver was launched in 2007 the employer contribution was to increase to 4% by 2011.

Add to this the fact that the current equivalent compulsory contribution in Australia is 12%, and my expectation is that we will see further increases in the compulsory contribution over coming years. 

What do I need to consider?

Obviously, this needs to be factored into your budgeting, costings etc.  The actual cost of an employee now increases to 22.5% over and above their hourly rate:

Holiday pay                                8%

Sick leave                                    4%

Kiwisaver                                     4%

ACC                                            2% (or higher depending on your industry)

Public holidays    4.5%

                    Total                             22.5%

NB as sick leave is not pro-rata, and public holiday entitlements are fixed according to the days of work, this percentage can be higher or lower for part-time employees.

KiwiSaver inclusive packages

If you have salaries/hourly rates which are “inclusive of KiwiSaver”, you will need to:

1. Check your contracts, is the wording “inclusive of any government legislated KiwiSaver contribution” or, is it “inclusive of the 3% government legislated KiwiSaver contribution”?  If you cite a specific percentage, then the additional 0.5% will be in addition to the current remuneration.
2. If there is no percentage cited in your contract then, technically, you could reduce how much you are paying the employee via PAYE by the 0.5%, however, how are employees going to react to this?  My recommendation is that you synchronise any pay reviews with the KiwiSaver increase on 1 April 2026, and 1 April 2027, and reflect the increased KiwiSaver contribution in the pay increase you are offering.  I.e. if you were intended a 3% pay increase, communicate this as a 2.5% pay increase plus 0.5% additional going into your KiwiSaver
3. Remember to talk to your employees about whether they want to opt out of the increased contribution.

Overall, my advice is to move away from “KiwiSaver inclusive” packages unless you are contributing to a different pension scheme for that employee.

KiwiSaver on-top

Obviously, this will be administratively easier (your payroll system will most likely do it automatically).  However, you need to:

1. Talk to your employees about whether they want to opt out of the increased employee contribution
2. Again, I would recommend that you synchronise pay reviews with the KiwiSaver increase

16 and 17 year olds now covered too

And, don’t forget your younger workers who will also be covered by the compulsory contributions from 1 April 2026. 

Here to help

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Cheers

Lisa Mackay

Founder HRtoolkit