Implementation

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Last Updated: Wednesday, 26 February 2025 14:37
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There was never any published instructions as to just how the sacrifice was to be implemented and various payrolls have applied it differently. What an employee needs to consider is simply the difference between his net pay and total net KiwiSaver contributions, both with and without the sacrifice.

A practical comparison on KeyPay, using an employee on $85,000 with a 2.9126% sacrifice and an extra 3% employer contribution, produced a net 24 cent disadvantage to the employee per week. Note that with percentages, taking 3% off and then adding 3% back are not the same amounts.

We have seen situations where the employer offers to also pay the employees own contribution. KiwiSaver legislation does not allow for zero employee contributions. Salary Sacrifice does not achieve that result, as the employer is just transferring payment from the employees wages to the employers contribution for an overall tax advantage. For an employer to also reimburse the employees contribution, they need to make an additional payment to the employees wages equivalent to the employee's own deduction. If doing this, to make this intention clear, it should implemented as a taxable allowance based on the same percentage of the employee gross pay as the employees own KiwiSaver rate, although the employer could offer to only subsidise the first 3% or similar.

The initial Salary Sacrifice system that KeyPay used to manage both the initial salary and sacrificed salary percentages for KiwiSaver, was removed a few years later during a major upgrade as it's purpose was no longer effective and not being used. However, sacrifice still be implemented by manually calculating the lower salary after the sacrifice and making a reference to the original salary in the notes and on the employees contract. The employer contribution % rate then must be increased by the matching percentage.

The sacrificed salary can be calculated by dividing by 1 plus the % rate divided by 100. e.g divide by 1.03 for 3 percent. So 85,000/1.03 = $82,524.27 which reduces the salary by $2,475.73. The employer then increases his Kiwi employer contribution by an additional 3% of $82,524.27 which, by a miracle, is $2,475.73 and the employer therefore pays the same $85,000 as before.

Employees be Aware

It has come to our notice that some employers are not being fair when implementing KiwiSaver. The intention of the Act was that employers contribute a minimum of 3% to each employees fund. However, some reduce a new employees pay-rate by 3% when they find out the employee is a KiwiSaver member.  They may also attempt to apply this to existing employees under the guise of Salary Sacrifice when they later join up. Please do not fall for this, its basically a scam for the employer to avoid KiwiSaver rules and to just pay employees less.

If an employer tries this on, before agreeing to it, immediately insist they increase their contributions from 3 to 6% in return for the sacrifice. For New employees, negotiate the pay-rate before answering about KiwiSaver membership. Tell them its not relevant.  Unfortunately, while the act still provides for a salary sacrifices, this scam is not illegal and does not specify the employer must contribute 6% instead of 3%. Also remember that 3% off is more that a later 3% on. Calculate in dollar amounts to avoid this. On a $100,000 salary, 3% off is $3000 or $97,000 and 3% back on is then $99,910 not $100,000? Instead divide by 1.03 (as above) to get a sacrificed 3% salary of $97,087.38. 

Our thoughts are that any employer that tries this is not being honest and not one we would consider working for.  What other things are they trying to avoid and how do they treat customers and other employees - not providing alternative holidays maybe?  A good employer will recognise and reward well performing employees. An employee can always negotiate for more leave or higher KiwiSaver contributions in lieu of salary.