KiwiSaver on Commission

Hi. I'm a bit late responding to your question and I'm really hoping that you had this sussed before your first day of work as it's a matter that should have been ironed out well before hand.

Technically speaking, employers are required to pay KiwiSaver contributions on top of salary AND commissions if you have an employer/employee relationship as defined by the use of the PAYE system.  If you are a contractor, then compulsory employer KiwiSaver obligations won't likely apply.

That said, even as a commission-based PAYE processed employee, it is still possible you might not be eligible for KiwiSaver contributions. Through something called "good faith" bargaining, KiwiSaver contributions are not necessarily compulsory for your employer if you have an agreement to that effect -- in advance of  you starting work.

The KiwiSaver Act (as it stands) allows for employers and employees to strike a deal outside of KiwiSaver, so you can negotiate higher pay in lieu of, or more time off in lieu of, or free child-care or what have you. Oops, I must be dreaming about that last part, but you get my drift.  The Act allows for some flexibility but this is not a one-way street. Everything needs to be on the table, discussed and agreed to,up front, by both parties.

If you are being paid through the PAYE system and you are on a commission and you didn't expressly have this conversation, I am told that the "default" position would direct your employer to pay on top of commissions. As for the amount, the minimum baseline of 2% would still apply.

I consulted with Workplace Savings NZ  chairman David Ireland who advises that the amount would fluctuate along side what you are earning - which bodes well if you are good at your job.

Ireland's advice for both you and your employer?

"You just want to be absolutely clear before you commence the relationship exactly what the implications are going to be from KiwiSaver.''

Even for salaried employees, clarity around that issue is going to become increasingly important.

That's because starting in April 2013, employers compulsory contributions will be increasing to 3% to compensate for declining Member Tax Credits which this month reduce to $10 a week up to a maximum of $521a year.

I'm guessing if you are a shrewd salesman or saleswoman, your employer is unlikely to want to be paying 3% on top of commissions but perhaps you'll have earned that so they won't mind in any event. The key is obviously knowing what the deal is before you go about business.

If you're looking for a free and second opinion on all this, best to check with your KiwiSaver provider. Ask to speak to one of their Authorised Financial Advisers. In theory, an AFA has more schooling and experience so should be better able to advise you on this matter.

Here's some links that you might find helpful in this regard.

Inland Revenue on Budget 2011 changes.

Department of Labour

KiwiSaver Act (on compulsory contributions for employers)

Compulsory contributions must be paid on top of gross salary or wages except to extent that parties otherwise agree after 13 December 2007
  • (1) The purpose of this section is to ensure that, for contractual arrangements of parties to an employment relationship (as defined in section 4(2) of the Employment Relations Act 2000), compulsory contributions are paid in addition to an employee’s gross salary or wages described in section 101D(3).

    (2) The contractual arrangements of parties to an employment relationship must not have the effect of defeating the purpose of this section described in subsection (1).

    (3) A contractual term or condition has no effect to the extent to which it is contrary to the purpose of this section described in subsection (1).

    (4) However, on and after 13 December 2007, parties to an employment relationship are free to agree contractual terms and conditions that disregard the purpose of this section described in subsection (1), and, to the extent of such agreement, subsections (1) to (3) do not apply, unless, in respect of the employer and employee,—

    • (b) the contractual terms and conditions do not account for the amount of compulsory contributions the employer is required to pay.

    (4A) In the circumstances described in subsection (4)(a) and (b), despite subsection (4),—

    • (a) compulsory contributions must be paid in addition to an employee’s gross salary or wages described in section 101D(3), in accordance with the purpose of this section described in subsection (1); and

    • (b) subsections (2) and (3) apply.

    (5) For the avoidance of doubt,—

    • (a) the duty of good faith described in section 4 of the Employment Relations Act 2000 always applies when parties to an employment relationship bargain for terms and conditions relating to compulsory contributions and associated matters; and

    • (b) [Repealed]

    (6) In this section, compulsory contributions means an amount of employer contributions equal to the amount of compulsory employer contributions that would be required by this subpart in the absence of section 101D(5)(a).

    Section 101B: inserted, on 1 April 2008, by section 65 of the Taxation (KiwiSaver) Act 2007 (2007 No 110).

    Section 101B(4): substituted, on 15 December 2008, by section 47 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).

    Section 101B(4A): inserted, on 15 December 2008, by section 47 of the Taxation (Urgent Measures and Annual Rates) Act 2008 (2008 No 105).

    Section 101B(5): substituted, on 10 September 2008, by section 10 of the Employment Relations (Breaks, Infant Feeding, and Other Matters) Amendment Act 2008 (2008 No 58).

    Section 101B(5)(b): repealed, on 16 December 2008, by section 10 of the Employment Relations Amendment Act 2008 (2008 No 106).