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Do Employers Have to Pay Extra for KiwiSaver?

KiwiSaver is a great scheme for getting Kiwis to save. After a decade we’re already saving billions collectively.

The success of the scheme lies in making saving automatic. Contributions get paid because employers make the payments on their employees’ behalf.

But what does it cost you as an employer? And is there a way to avoid that extra burden?


Let’s be clear about what KiwiSaver requires.

If your employee is a member of KiwiSaver, they get two contributions to their account:

  • Their own contribution, which must be at least 3% of their gross pay (employee contribution); and
  • A contribution from you as their employer, also 3% of the employee’s gross pay (employer contribution).

In other words, every pay day, KiwiSaver members should see at least 6% of their gross pay funnelling into their accounts.

You make those deductions and payments each time you pay your staff PAYE to Inland Revenue.


Of the two types of contributions, the employee contribution is easy to make.

You deduct 3% from what you would have otherwise paid to your employee as gross pay. You then pay that with the PAYE for that staff member.

There’s nothing extra for you to pay – you’re just redirecting 3% from the employee’s take-home pay.

But what about the employer contribution? Can you deduct that from the employee’s gross pay too?

The default position is that you can’t. By default, employer contributions get paid on top of the employee’s gross earnings.

That means that, in effect, the employee gets paid 103% of their agreed payment if they are a KiwiSaver member. It’s like an instant 3% pay rise when they join (even though they can’t touch that 3% until they’re 65).

That can pose a couple of problems for employers:

  • First, you’ll have to account for that extra 3% on your wage bill. You may not know who will join KiwiSaver. That means your salary rates should always allow for the possibility of paying 3% extra if an employee joins KiwiSaver.
  • Second, comparing what different staff earn can be difficult. Imagine two staff members, Joe and Susie, who are on the same salary. Initially, neither elect to join KiwiSaver. But if Susie later joins KiwiSaver and receives 3% extra, Joe might feel like she’s getting paid more. Do you top up Joe in those circumstances, or tell him to join KiwiSaver?

You might wish there was a way to avoid these problems. Well, there is a way…


The truth is you can’t avoid paying the employer contribution. Every employer must pay it for KiwiSaver members.

But you can avoid paying it on top of the employee’s pay by deducting it from their gross earnings. That way it gets treated the same way as the employee contribution.

When can you do this? Only if the employee’s employment agreement says you can.

The law is clear. The employment agreement must account for the amount of the employer contribution.

That does not mean you have to spell out exactly what you’ll be deducting. But you do need to be explicit that the employee’s pay includes the employer contribution.

Here is an example clause you might use:

If you are a member of KiwiSaver, your total pay specified in this agreement includes the employer’s compulsory contributions to your KiwiSaver account. You agree that all contributions to KiwiSaver made by you and the employer will get deducted from your total pay . 

If you are not a member of KiwiSaver, the employer will not make any contributions to your KiwiSaver account. Instead, the full amount of your total pay will get paid to you without any deductions for KiwiSaver.

Note: The above clause requires that you specify somewhere in the agreement what “total pay” includes.


Of course, if you are to include a clause like the above one in an employment agreement, your employee has to agree. That’s why they’re called “agreements”.

It’s easiest if the employment agreement includes this clause from the outset. A new staff member can consider the effect of this clause as part of the total job offer.

But what about adding this clause to the agreements for those who are already your staff?

In that case, you’ll need to incentivise your staff to agree, perhaps by linking it to a pay rise or bonus.

In doing so, you’ll also need to bear in mind a couple of things:

  • You have an obligation to act in good faith and not deceive them. That means you should explain the effect of the change to them.
  • Any pay rise may need to be sufficient to assure the employee they’re not being disadvantaged.


Making your employees’ pay inclusive of employer contributions may not mean you pay less. You may have to pay salaries and wages equivalent to what they would have been if you had not taken this approach. That may be what the market demands.

But taking this approach could make accounting easier. It will also allow you to compare rates of pay between staff, regardless of who joins KiwiSaver.

If you do go down this track, think carefully about how you’ll reach an agreement with your employees. You can’t take this approach unless they agree and it gets recorded in their agreement. So thinking through how to incentivise current staff will be key.

Does including employer contributions to KiwiSaver as part of your employees’ pay sound attractive to you?

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