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Taxation - How to calculate an employee's ESCT rate

 

ESCT is the employer superannuation contribution tax deducted from the employer’s contribution to KiwiSaver and workplace savings scheme under the Financial Markets Conducts Act 2013, made for an employee.

The ESCT rate is set when an employee first starts employment with the employer and reset each 1 April after that or when the tax laws change.

ESCT is paid to the Inland Revenue along with the PAYE deductions and net KiwiSaver contributions on the employer deductions form (IR345).

ESCT rates

The ESCT rate that applies depends on the employee’s “relevant remuneration”. Relevant remuneration equals the taxable income of the employee plus the employer contributions to KiwiSaver and other superannuation schemes. Only income and the contributions paid by the employer and related employers are included. That paid by unrelated employers and income earned elsewhere does not count.

To calculate an employee’s ESCT rate

An employee’s ESCT rate is set when the employee first starts employment with the employer and is updated each subsequent 1 April unless the legislation changes. The ESCT rate applies for the year and ignores pay reviews during the year.

When the employee first starts work

The ESCT rate is calculated by making a “reasonable estimate” of what the employee’s relevant remuneration will be from the day they started to the next 31 March. For example, if he started on 1 February:

       $
Annual income level  40,000
Employer contributions to KiwiSaver (3%)       1,200
Total annual “relevant remuneration” 41,200

Expected remuneration (February to March) = 2/12ths x $41,200

   6,866
ESCT rate (as per table) 10.5%

Note: “KiwiSaver” above should be KiwiSaver and any other employer superannuation scheme payments.

At 1 April

  • If the employee has not worked for the employer for the full tax year

The ESCT rate is calculated by making a ‘reasonable estimate’ of what the employee’s relevant remuneration will be for the coming year.

       $
Annual income level  40,000
Employer contributions to KiwiSaver (3%)      1,200
Total annual “relevant remuneration” 41,200
ESCT rate (as per rates below) 17.5%

 

  • If the employee has worked for a full tax year

The ESCT rate is calculated based on the actual relevant remuneration for the previous year to 31 March.

       $
Actual total income paid 58,000
Actual employer contributions to KiwiSaver (3%)      1,740
Total annual “relevant remuneration” 59,740
ESCT rate (as per rates below)    30%

 

Current tax rates (since 1 October 2010)

Relevant remuneration level ESCT rate
$0 to $16,800 10.5%
$16,801 to $57,600 17.5%
$57,601 to $84,000 30%
$84,001-plus 33%

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