KEY POINTS:
Q. My employer has just sent us this email. They are receiving the $20 a week subsidy but are not paying it to staff. To clarify - position with respect to the employer contribution, - maintains a "fixed remuneration" policy in relation to salaried staff. It should be noted that all and any contributions required by law to be made by the employer in relation to the KiwiSaver scheme will be deducted from the employee's gross salary.
The compulsory contribution which is required to be made on top of your regular pay applies despite any previous agreements your employer may have made before December 13, 2007.
After this date, your employer can offset their contribution against "pay movements", so long as this is negotiated in good faith.
Good faith requires employers, employees and unions to be active and constructive in establishing and maintaining productive relationships.
It means employers, employees and unions are not allowed to do anything that misleads or deceives one another.
In this case, your employer has a "fixed remuneration policy" which means that your employer is setting your salary at a level which takes into account the required contribution it needs to make.
This is why your employer has advised that any contributions required by law in relation to the KiwiSaver scheme will be deducted from your gross salary.
From the facts at hand it appears that your employer has reached a salary sacrifice arrangement where part of your salary is sacrificed for an employer superannuation contribution.
Such arrangements apply where the employee and employer mutually agree that the employee's salary will be reduced by a specific amount which is instead paid as an employer contribution to the superannuation scheme.
Your employer is not required to pay you the $20 a week subsidy.
The Government will help cover the cost of your employer's contributions by giving it a tax credit of up to $20 a week per contributing employee. Your employer is entitled to this tax credit.
What is the effect of salary sacrificing KiwiSaver contributions?
The effect for you is that any contributions you make using a salary sacrifice arrangement:
* Reduce your annual salary (so you pay less income tax).
* Will not count towards your member tax credit entitlement, as they are treated as an employer contribution.
* May affect any of your future salary-based entitlements - to ACC and redundancy.
The effect for your employer, depending on your own level of contributions and the type of super scheme, is that they will pay less employer superannuation contribution tax (formerly known as specified superannuation contribution withholding tax or SSCWT) and, in some cases, no employer superannuation contribution tax at all.
Example: salary sacrifice of 4 per cent.
Sandy earns $100,000 per year. She salary sacrifices 4 per cent of her income in exchange for a contribution of the same amount from her employer.
She also contributes 4 per cent of her income to KiwiSaver.
The amount of tax that Sandy has to pay is reduced because her new salary is lower.
By sacrificing 4 per cent, Sandy's employer's contribution is more than Sandy's KiwiSaver contribution. This means that Sandy's employer has to pay employer superannuation contribution tax on the difference.
If your employer has not referred to its KiwiSaver policy regarding employer contributions and offsetting this against pay movements, then your employer has not acted in good faith.
Your employer is not required to refer to this arrangement in your employment agreement, but should have a policy in place regarding it.
I recommend that you speak with an employment law specialist.
You should read your employment agreement and ask your employer for its policy regarding the salary sacrifice arrangement.
