What is the Employer Superannuation Contribution Tax (ESCT) rate, and how does it affect employee KiwiSaver contributions?

The Employer Superannuation Contribution Tax (ESCT) is a withholding tax that employers must deduct from contributions they make to an employee's complying superannuation scheme, including KiwiSaver, if the contribution is above the minimum mandatory level.

### ESCT Rates

The ESCT rate applied depends on the employee's marginal income tax rate. The rates are tiered to align with the standard income tax brackets. As of the current tax period, the ESCT rates are:

Note: The ESCT rate applied to the employer's contribution is determined by the employee's taxable income for that pay period or the relevant income period, matching the applicable income tax rate bracket.

### How ESCT Affects KiwiSaver

ESCT applies specifically to employer contributions made above the mandatory minimum contribution (currently 3% of the employee's ordinary time earnings, OTE). However, the IRD guidance often simplifies this: ESCT is generally deducted from the portion of the employer's contribution that is not considered part of the employee's employment income (like a compulsory contribution).

Crucially, ESCT is not deducted from the employee's own contributions (the 3%, 4%, 6%, 8%, or 10% they choose to contribute from their after-tax pay).

ESCT is deducted by the employer at the time the contribution is made and paid directly to Inland Revenue (IRD). It functions similarly to PAYE withholding tax. The employee does not claim a tax credit for ESCT, as it is the employer's tax obligation on their contribution.

Example: If an employer contributes 4% of OTE to KiwiSaver, the ESCT rate applicable to that 4% contribution is based on the employee's income tax bracket. This ensures that employer contributions are taxed appropriately based on the employee's overall tax liability structure.