Understanding Employer Superannuation Contribution Tax (ESCT)

What is Employer Superannuation Contribution Tax?

Employer Superannuation Contribution Tax or ESCT, is a tax that applies to contributions made by employers to their employees’ superannuation accounts, including KiwiSaver. As an employer, understanding your obligations is crucial to ensure you’re complying with New Zealand tax regulations and properly managing your payroll responsibilities.

Many business owners find ESCT confusing because the rates can vary for each employee. Let’s break down everything you need to know about ESCT and how to manage it correctly.

Calculating ESCT Rates for Your Employees

At the beginning of each tax year (April 1), you must determine the appropriate ESCT rate for each of your employees. This rate is calculated based on what’s known as the employee’s “ESCT threshold” – which comprises:

• The employee’s total gross salary or wages
• Any employer contributions to their KiwiSaver or other superannuation funds from the previous tax year

The current ESCT rates (effective from April 1, 2025) are:

• 10.5% for annual income of $0 to $18,720
• 17.5% for annual income of $18,721 to $64,200
• 30% for annual income of $64,201 to $93,720
• 33% for annual income of $93,721 to $216,000
• 39% for annual income of $216,001 and above

Different Calculations for Different Employment Situations

The way you calculate ESCT rates depends on how long an employee has worked for you:

For Employees Who Worked the Entire Previous Tax Year

If an employee has been with your company for the full previous tax year, base their ESCT rate on:

• Their total salary/wages received during that period
• The total employer cash contributions made to their superannuation

For New or Partial-Year Employees

For employees who joined during the previous tax year or are new hires, base their ESCT rate on:

• Their estimated salary and wages for the current income year
• Your estimated total employer cash contributions for the current year

What’s Not Subject to ESCT

It’s important to note that not all superannuation-related payments are subject to ESCT. You do not pay ESCT on employee-initiated contributions – when your employee asks you to deduct money from their pay to put into a superannuation scheme. These are considered employee contributions, not employer contributions.

Employer superannuation contribution tax (ESCT) is deducted from your employer contributions to your employees’ KiwiSaver or complying funds. Complying funds are superannuation schemes with similar rules to KiwiSaver. For example, members’ savings are locked in until they’re eligible for NZ Superannuation. If the fund is not a complying fund, Fringe Benefit Tax rules will apply.

Paying ESCT to Inland Revenue

Once you’ve calculated the appropriate rate for each employee, you’ll need to pay the total amount to Inland Revenue. This payment is made on the same due date as your Pay As You Earn (PAYE) and other payroll deductions when filing your:

• Employer Monthly Schedule
• Employer Deductions forms

Filing Your ESCT Returns

This is done as part of your payroll payday filing. The most efficient way to file your ESCT returns is online through myIR. This method offers several advantages over paper filing:

• Greater accuracy in reporting
• Faster processing times
• Reduced risk of errors
• Easier record keeping

Staying Compliant with ESCT Obligations

Managing your obligations correctly is an important part of your payroll responsibilities. If you’re unsure about any aspect of ESCT, it’s advisable to:

• Consult with your Chartered Accountant
• Contact Inland Revenue directly for guidance
• Consider using payroll software that automatically calculates your obligations based on employee details

Why ESCT Matters to Your Business

Properly managing payroll taxes is more than just a compliance issue – it affects:

• Your business’s financial reporting
• Your employees’ retirement savings
• Your overall payroll costs

By understanding ESCT, you ensure that both your business and your employees are getting the most out of superannuation contributions while remaining compliant with New Zealand tax law.

Need More Help with ESCT?

If you’re still uncertain about your obligations or need assistance with implementation, reach out to Business Like NZ Ltd for personalized advice tailored to your specific business needs. Our team of financial experts can help ensure you’re meeting all your employer obligations while optimizing your payroll processes.

Remember, staying on top of your payroll responsibilities is an important part of being an employer in New Zealand, and getting it right benefits both your business and your employees.