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Understanding contribution flows

One of the most confusing aspects of KiwiSaver is understanding how employee and employer contributions reach an individual’s KiwiSaver account. Below is a detailed explanation on how KiwiSaver contributions are processed through Inland Revenue. For more information, call us on 0800 800 627.

 

Contribution flows via Inland Revenue:

 

Employers file two types of returns with IRD, an IR 345 pay-in slip, and an employer monthly schedule (EMS).


The IR 345
This return accompanies each payment, so small employers file one IR 345 a month and large employers file two. The IR 345 shows the total amount of PAYE, child support, student loan deductions, KiwiSaver employee deductions, and KiwiSaver employer contributions paid by the employer for the pay period. Details for individual employees are not shown.

 

Deductions made…

…are due with Inland Revenue by

Between the 1st and the 15th of the month

The 20th of the same month

Between the 16th and the end of the month

The 5th of the following month

 

The employer monthly schedule (EMS)
All employers file an EMS every month with Inland Revenue. The EMS gives a summary of the employer’s payroll for the month. It’s a bit like a wage book and shows wages paid and deductions made. Unlike the IR 345, the EMS shows details for each individual employee.


Small employers file their EMS by the 20th of the following month and large employers file theirs by the 5th of the following month.

 

What is Inland Revenue’s role?
Inland Revenue collects the payments employers make on behalf of employees (including KiwiSaver employee deductions and employer contributions) and process the IR 345 and EMS returns.

 

The processing of an individual’s KiwiSaver contributions starts when the EMS is filed. The EMS is a detailed form so Inland Revenue must check it carefully. Inland Revenue needs to make sure the money is credited to the right people. Sometimes information is missing, or the data doesn’t match Inland Revenue’s records. In these cases, Inland Revenue needs to follow up with the employer. The checking process can take up to a month, although it can be less if everything goes smoothly.

 

Once Inland Revenue is satisfied the EMS is in order, it transfers the KiwiSaver payments to the scheme providers.

 

Employee deductions
The Government guarantees that employee deductions (up to a maximum of 8% of an individual’s pay) will be paid to the scheme provider. This means that the employees account will be credited, even if the employer is late paying Inland Revenue the money. Inland Revenue sends employee deductions to the scheme provider once it's satisfied that the information in the EMS is correct.

 

Employer contributions
These are not guaranteed by the government. Inland Revenue can only send employer contributions to the scheme provider if the employer has paid the money to Inland Revenue.

 

Employer contributions and large employers

Individuals who work for a larger employer may find that the employer contributions that appear on their KiwiSaver statements don't match the payments made by employer. This is quite normal, and the amounts should balance in the long run.

 

Why does this happen?
It’s because large employers pay their employer contributions twice a month but only file an EMS once a month. It will be easier if we look at an example.

 

Example:
Craig works for XYZ Limited, a large employer. Here’s how XYZ accounted for their October employer contributions:

 

Date

Activity

Amount

Comment

20 October

XYZ pay their

contributions for the

first half of October

$1,900

Inland Revenue receive their first

IR 345

5 November

XYZ pay their

contributions for the

second half of

October

$2,100

Inland Revenue receive their

second IR 345 and

their EMS

 

The IR 345s only show XYZ’s total employer contributions ($1,900 and $2,100).There’s no breakdown showing amounts for each employee.

 

How do IR allocate employer contributions to Craig, when the IR 345 doesn’t show who gets what?

The EMS is used, which does show details for individual employees.

 

The EMS shows that, in October, XYZ paid total employer contributions of ($1,900 plus $2,100) $4,000. We find Craig’s employer contributions for the month came to $45.

 

Craig’s $45 relates to two periods. The law requires Inland Revenue to allocate it on a pro-rata basis.
We calculate that Craig gets ($45/$4,000) 1.125% of all employer contributions. The allocation is as follows:

 

For the first half of the month ($1,900 @ 1.125%) $21.37
For the second half of the month ($2,100 @ 1.125%) $23.63

When Craig compares his payslip to the statement from his scheme provider, he noted these figures:

 

Craig’s payslip:

 

Date

Employer contribution

2 October

$9

9 October

$10

16 October

$12

23 October

$14


Total contributions = $45

 

Craig’s statement

 

Date

Employer contribution

5 January

$21.37

5 January

$23.63


Total contributions = $45

 

Summary
The process of pro-rating contributions means the employer contributions received are unlikely to ever match an employee’s actual payments. They are also likely to vary from one payment received to another.
It is best to allow a period of time before reconciling contributions. Note that Inland Revenue may take a while to process the EMS. 

 

For more information on how KiwiSaver contributions are processed see http://www.kiwisaver.govt.nz/already/track-contrib/

 

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