KiwiSaver in the State Sector - Advice and instructions to State sector employers on reimbursement of compulsory employer contributions from Vote State Services (superseded)

Introduction and background

1 In December 2007 legislative amendments to the KiwiSaver rules introduced the requirement for all New Zealand employers to pay employer contributions to Inland Revenue for eligible employees who choose to make employee contributions to a KiwiSaver scheme.

2 Employer contributions to KiwiSaver must be paid from the first full pay after 1 April 2008. KiwiSaver employee deductions and employer contributions must be forwarded to Inland Revenue through the PAYE system, accompanied by the IR345 form. Documentation in the form of the EMS (IR348) or the ir-File must contain detailed employee deductions and related employer contributions data.

3 Most State sector organisations (refer Appendix 3), may qualify for and claim reimbursement from the State Services Commission (SSC) for the actual net cost of the employer contributions, subject to eligibility and "no double dipping" rules, via a quarterly invoice. State-owned enterprises and their subsidiaries, subsidiaries of Crown entities, and entities funded but not owned by the Crown such as NGOs, are not eligible for the central funding.

Employee's eligibility to receive a compulsory employer contribution (CEC)

4 Under the KiwiSaver rules, most employees who join KiwiSaver will be entitled to receive a legislated amount of employer contribution (compulsory employer contribution or CEC) if they are making employee contributions to a KiwiSaver scheme from their salary or wages. The following paragraphs list those employees who are not eligible to receive CEC.

5 Any employee who is a KiwiSaver member may receive voluntary employer contributions, even if they are not eligible for CEC as described in paragraphs 4.1 - 4.3.

6 The CEC for KiwiSaver is to be paid on top of gross salary and wages. However, from 13 December 2007, employees and employers can agree on different terms as to how the CEC is positioned in employment packages. Ministers have stated a preference for CEC to be paid on top of existing remuneration (not tradable for cash) and have provided central funding accordingly.

Taxable nature of employer contributions and CEC to KiwiSaver schemes

7 A portion of employer contributions to KiwiSaver schemes is exempt from employer superannuation contribution tax (ESCT).¹ The exemption applies to the lesser of:

8 Any employer contributions over the exemption threshold are subject to ESCT.

Employer tax credits

9 A significant proportion of the cost of CEC will be met for many employers as a result of the Government's decision to pay Employer Tax Credits (ETC), where the employee is contributing to a KiwiSaver scheme and the employer is required to pay CEC. ETC will be paid at the rate of the lesser of:

10 All contributing employers, including State sector agencies, NGO's and other non-profit organisations are entitled to claim the ETC.

11 ETC claims are made in conjunction with PAYE returns, using the IR345. The employer offsets the amount of the ETC against the payment due, and pays the net amount to Inland Revenue.

Maximum funded CEC rate

12 The maximum CEC rate that may be funded by Vote State Services in each twelve months from 1 April is the legislated percentages of gross salary and wages (as defined in the Income Tax Act 2007) less any ETC claimed; see the table below:

13 See Reimbursement of CEC below for the amounts that will be reimbursed taking into account existing and new scheme offers to staff.

Reimbursement of CEC

14 Agencies will be reimbursed from Vote State Services for the increase in their actual costs to meet the CEC obligation in relation to KiwiSaver. The reimbursement only covers additional actual costs up to the Maximum Funded CEC Rate. The reimbursement does not cover fees or other indirect costs such as payroll amendments or staff training, and it does not cover the amount of any pre-existing employer contribution offers to registered superannuation schemes or KiwiSaver schemes or where the KiwiSaver offer is replacing a prior scheme offer (except see paragraph 17 in relation to currently funded SSRSS employer contributions).

15 Actual cost refers to the qualifying contributions paid to the IRD less any ETC, therefore claims should not have accruals included. The data supporting the claim should only contain data relating to what is allowed to be claimed; please do not include any information relating to schemes not eligible for reimbursement as set out in paragraph 14 above.

16 Agencies that pay an employer contribution to another scheme, that existed before 1 April 2008, and fund this cost out of baseline are not entitled to central funding of those contributions or of any KiwiSaver contributions that replace that offer. For example, funding is not available if the employee with an existing superannuation subsidy:

17 It is important for the agency to know what its base starting position is, as to (1 April 2008) eligibility for KiwiSaver funding. Only positions that were not eligible for a subsidised scheme will be eligible for KiwiSaver CEC reimbursement. The documented starting position can be used to help prove validity of the agency's submitted claim.

18 An employer that is currently reimbursed from Vote State Services for employer contributions to SSRSS can claim reimbursement for the Maximum Funded CEC Rate for all employees who have no other subsidised scheme. For example, if an SSRSS member elects to receive CEC to KiwiSaver, they can not also receive funded SSRSS employer contributions (or salary sacrifice contributions to SSRSS). Therefore the employer would be able to seek central funding for the Maximum Funded CEC Rate for that employee, as no other crown funding is being spent on that employee for superannuation.

19 SSC will not reimburse voluntary employer contributions where no CEC is payable for an employee or group of employees.

20 In circumstances where a new employee opts out of KiwiSaver (on or after day 14 and on or before day 56 of starting employment, or as advised by IRD), the employer will receive a refund of CEC plus interest less applicable ETC (i.e. ETC reversal). The amount received from Inland Revenue should be offset against the funding claimed for that quarter. Show this offset through the adjustment section of the claim supporting data form.

Making a reimbursement claim to the State Services Commission

21 At the end of each quarter, agencies that are eligible and wish to make a claim, can invoice the SSC for their CEC (up to the Maximum Funded CEC Rate) for pay runs that occurred in that quarter, up to and including the last whole pay period in the quarter.

22 Each invoice must include details of the bank account to which payments are to be made, employer's PAYE IRD number(s), and an email address for queries and advising remittances.

23 Quarterly invoices should include details as per the attached Worksheet (Appendix 1), certified by the CFO or his/her designate, and reach the Commission no later than the 7th working day after the end of each quarter.

24 Each June quarter invoice should note any accrual amount relating to unclaimed KiwiSaver CEC amounts for the year just ended to ensure funding is available for when the actual cost is invoiced.

25 Invoices should be addressed to:

Supporting data for reimbursement claims

26 The supporting data worksheet (Appendix 1) sets out the information required to support a reimbursement claim. Adjustments must be made for any items that may otherwise distort the amount able to be claimed. This may include refunds of contributions when an employee opts out, or where a correction needs to be made for a mistake made in a previous return. Note, the claim should only show information relating to staff that are eligible to be funded under the funding rules.

27 Details of how the adjustments are calculated should be attached to the invoice.

GST

28 In terms of the GST legislation, these invoices for recovering expenditure are deemed to be for supply of services and should therefore have GST added.

Payment by SSC

29 SSC expects to pay the quarterly invoices received from agencies according to SSC's normal payment cycle (currently twice monthly) subject to resolution of all outstanding enquiries in relation to that invoice. We will pay invoices by electronic transfer, and send a remittance advice by email.

Audit

30 Agencies can expect their records pertaining to claims on the KiwiSaver central funding to be examined during the course of their annual audits. The SSC may request additional information and explanations relating to claims, or request or undertake an audit of the claims and the associated records.

Forecasts

31 As part of the process of obtaining funds, each agency will need to complete the Forecasting data worksheets (in Appendix 2). This information will help SSC with its forecasting and funding administration. SSC expects to request this information to support Crown budgeting processes, and will give adequate advance notice of this requirement. Currently these forecasts are expected to be requested in September and February, for the current year funding adjustments, for the next financial year budget and outyear forecasts. This will assist in ensuring adequate appropriations will be allocated to Vote State Services.

Enquiries

32 Enquiries about invoicing and reimbursements should be made to:

super@ssc.govt.nz

Appendix 1: KiwiSaver claim supporting data

Note: Employer KiwiSaver contribution in this return should be the amount that represents the current minimum legislated amount of CEC, not the full amount payable.

Appendix 2: Forecasting data worksheet

This worksheet is provided

here as a PDF file.

Appendix 3: State Sector Agencies

¹ From 1 April 2008, specified superannuation contribution withholding tax (SSCWT) is called employer superannuation contribution tax (ESCT), as a result of changes introduced in the Income Tax Act 2007.

² The Ministry of Education will coordinate reimbursement claims for state and state-integrated schools and will provide schools which manage their own payroll with information in the near future. Information will also be available from

www.payroll-serv.co.nz