Overview

In New Zealand, Employer Superannuation Contribution Tax (ESCT) is a tax on any monetary contribution to a superannuation fund that is paid by the employer for an employee's benefit.

Note: The IRD used to refer to ESCT as SSCWT (Specified Superannuation Contributions Withholding Tax).

ESCT rates

All employer contributions (except to defined benefit funds) are subject to ESCT. For the latest rates, visit the Inland Revenue website.

The ESCT rate threshold is based on the employee's earnings in the previous tax year. It is not a rolling 52-week average.

Update ESCT rates

PayGlobal automatically recalculates employee ESCT rates (see Employees - Superannuation) when you open the first standard pay of the new tax year.

Limitation: For employees that started employment in the previous tax year PayGlobal does not calculate the ESCT rate as per IRD specifications/Income Tax Income Tax Act (2007) YA 1 Definitions. You will need to manually check/up the rate PayGlobal has calculated for these employees before closing the first standard pay of the new tax year.

When you open the first pay of the new tax year, the Open Pay Audit log will show if the employee's ESCT rate is based on a full year or a part year:

• For employees that were employed for all of the previous tax year, their ESCT rate is based on:

  GROSS EARNINGS FOR PREVIOUS TAX YEAR + GROSS EMPLOYER’S SUPERANNUATION CONTRIBUTIONS IN PREVIOUS TAX YEAR.

• For employees that started in the previous tax year, their ESCT rate is based on:

  (GROSS FOR PREVIOUS TAX YEAR * NUMBER OF PAY PERIODS IN THE YEAR / NUMBER OF PERIODS PAID) + (GROSS EMPLOYER SUPERANNUATION PAID IN PREVIOUS TAX YEAR * NUMBER OF PAY PERIODS IN THE YEAR / NUMBER OF PERIODS PAID)

  However, the legislation requires these employees ESCT rates to be based on an estimate of what the employee is expected to be paid in the new tax year. The IR require you to do this by determining what the employee is expected to be paid (i.e. taxable gross income + employer superannuation contributions) within the first 14days of the new tax year, dividing by 14, then multiplying the total number of days in the tax year (i.e. usually * 365 unless its a leap year then * 366)

• For employees that start within the first pay of the new tax year, PayGlobal will use the ESCT already set on the employee record.

  As per IR requirements it is expected that you have set the employee's ESCT rate based on income from their first pay in the new tax year (i.e. taxable gross + employer superannuation contributions), divide by number of days those earnings relate to, then multiplied by the remaining days in the new tax from the employees employment start date. This formula also applies to all other employees that start within a current tax year.

  Important: Pay processing will fail if any employees with a current Employee Super Fund have ESCT rate = "0.00".

You can also update employee ESCT rates by running the Recalculate ESCT Rates command.

You should only run this tool for employees that have been employed for 1+yrs.

If you run the Recalculate ESCT Rates command for a new employee who has an ESCT rate value, but no processed pays in the previous tax year, then their ESCT rate will change to 0.00. You must manually enter an ESCT rate value based on the employee's expected income for the current tax year.

If you re-employ a previously terminated employee, then you should create a new employee record for them. If you 're-instate' a terminated employee by removing the Termination date from their record, then their ESCT rate calculations may be incorrect.

See also

New Zealand Superannuation and Salary Sacrifice Manual (download from website library)

KiwiSaver

Superannuation Fund

Employees - Kiwisaver States