What are the rules on employer contributions? Can they reduce salary to offset their share of KiwiSaver?

What are the rules on employer contributions? Can they reduce salary to offset their share of KiwiSaver?

Q) My daughter recently started her first job. The salary is $35,000. If she wants to be in KiwiSaver her salary would be $35,000 less 2%. How can this be an employer contribution if she is effectively the one paying it? Is this legal?

A) In short, no this is not legal.

The KiwiSaver Act specifically condemns this sort of nonsense. If sh

Employer's KiwiSaver contributions are supposed to be on top of regular pay unless your daughter agreed (through "good faith bargaining") to a reduced wage or salary in lieu of KiwiSaver contributions as part of an employment package.

This is a direct quote from Inland Revenue:

"Your take-home pay should not be reduced because your employer is making a compulsory contribution."

That said there are a few situations whereby employers are exempt from making contributions. They are as follows:

  • if they're already paying into another eligible registered superannuation scheme.
  • if the KiwiSaver is under the age of 18
  • if you are over 65 years of age (and you've been a member for more than five years)
  • if the employee is not making contributions

You can read the details on Inland Revenue's website

Here's some more information below from the Department of Labour's website on deductions which suggests that you're daughter might also have had to sign off on any paperwork agreeing to a reduced salary in lieu of contributions.

As a fresh hire, you daughter won't likely want to rock the boat but I'm sure she'll miss the $700 a year extra more than her employer will.

(See our KiwiSaver retirement calculator here).

Armed with the right paperwork and approach, she should be able to set the record straight.

Employers generally can’t make deductions (take money) from employees’ wages. Employers can only do this where:

  • an employee has agreed to or requested the deduction in writing. The employee can vary or withdraw this consent by giving notice in writing at any time. The employer must then vary or stop the deductions within two weeks of receiving the notice or as soon as practicable
  • an employment agreement says the money can be taken out (for example, for union fees in a collective agreement)
  • an employer wishes to recover overpayments where the employee has been absent from work without the employer's authority, been on strike, locked out or suspended. The employer may only recover an overpayment where it was not reasonably practicable to avoid making the overpayment. The employer must tell the employee of their intention to recover the overpayment before deducting any money and then make that deduction within two months of telling them.
  • a Court directs that a deduction be made
  • a bargaining fee arrangement applies to the employee
  • an employee is required by law (for example, income tax, child support payments or other statutory purposes) to make payments.

If an employee is provided with board and lodging the employer may deduct the costs of board or lodging where the amount is fixed under any Act, determination or agreement. If the amount payable is not fixed, the employer may deduct no more than 15% for board, or no more than 5% for lodging.

If there is a breach of the Act or an employment agreement, call the Department of Labour on 0800 20 90 20.

Do you have a KiwiSaver question? Send us an email and we'll do our best to get you an answer,



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Unfortunately, there are some grey areas here.   Yes, the spirit of the law is that an employer can't take their 2% off the earnings of an employee - but some do - and they do it within the law.

Employers can't really do it to existing employee without consent,  but they offer a new employee a total remuneration package which takes into account the fact that they are effectively funding the employer contribution out of their own pay.  

The required paperwork referred to in the article is in the Contract of Employment and at the time of hiring. Some employers know that they hold all the cards and will adopt a "take it or leave it" approach.   It is rare that someone eager to take on a new job will question this technicality at the expense of being hired.   This practice is legal.  Until someone brings a class action against an employer to challenge it.   Under the previous Government, the rules were much tighter.

Another thing some employers have done is set up a separate scheme that satisfies the basic conditions for KiwiSaver exemption.     They send a hunk of bewildering paperwork about that scheme to the new employee and do not encourage them to join it.   But it means that they don't have to enrol new employees into KiwiSaver.   This doesn't work so well though, because it doesn't get them off the hook if the new employee is already in KiwiSaver.

It's much easier, I think, for an employer to go with the flow when it comes to KiwiSaver.   The amount of time, energy and legal fees spent in trying to cleverly side-step it would have been better served in running the business, I'd have thought.


But if the employee sits back and examines the total package he / she in on now and is being a offered a higher salary package then what is the difference?

"go with the flow"  I would assume if there is an employer that isnt like this then they are likely to be poor in other areas, so the better employees will see this and leave.


You are right, Steven.  There is a niggling minority (and it *is* a minority) of employers that  cut corners, look for side-steps and forensically research how they can dodge responsibility and save money - to the point of mental illness.    It is good to be prudent, but the lengths that these employers go to display a skewed perspective on what is important, and yes, any good people they have do tend to leave.     This can be an over-keen accounts area, by the way, I have seen employers genuinely shocked by the silly things their own people do to save a buck.

Indeed, but in a level playing field these ppl/employers wont survive ...hence things like the minimum wage is a good thing....and I wouldnt think they could get around the minimum wage by claiming the kiwisaver is part of it....be interesting to see if they do however....that I would think is illegal...

I think someone said having accountants in charge of a business is one good way to go out of business.....



Can you email me directly when you've got a moment: amanda.morrall@interest.co.nz