If you make employer contributions to your employee’s superannuation fund (such as KiwiSaver or a complying fund), you need to deduct Employer Superannuation Contribution Tax (ESCT) before passing the payment on.

You need to work out the ESCT rate for each employee at the beginning of each tax year. Once set, it is not changed until it is reassessed again the following tax year.

The introduction of payday filing has meant Inland Revenue has greater visibility of the ESCT rates being used by employees. It’s therefore important to make sure you’ve selected the right ESCT rate and that this is reviewed on an annual basis. We’ve included some information below about how DataPay calculates ESCT rates.

Working out your employee’s ESCT rate

How your employee’s ESCT rate is worked out depends on how much they earn and how long they have worked for you. You do not need to know how much an employee earns in any other jobs they may have.

Step 1: Estimate your employee’s annual income. This is the sum of their gross salary or wages plus gross employer superannuation contributions during the last tax year. If your employee worked for you:

The whole of the previous tax year (1 April 2021 to 31 March 2022)

In DataPay, this is where the employee’s first pay date is prior to the first day of the previous tax year (i.e. before 1 April 2021) and their latest pay date is after the start of the current tax year (i.e. after 1 April 2022).

To work out the employee’s annual income, DataPay will add together:

the employee’s total gross salary or wage for the previous tax year
your total gross employer contributions made to their superannuation fund for the previous tax year

Part of the previous tax year (1 April 2021 to 31 March 2022)

In DataPay, this is where the employee’s first pay date is after the first day of the previous tax year (i.e. after 1 April 2021) and their latest pay date is after the start of the current tax year (i.e. after 1 April 2022).

Based on the employee’s first pay packet in the new tax year, DataPay will add together:

the employee’s estimated total gross salary or wage for the current tax year
your total estimated gross employer contributions you will make to their superannuation fund for the current tax year.

Started this tax year (1 April 2022 to 31 March 2023)

If you’ve got a new employee, DataPay will automatically work out their ESCT rate based on the earnings in their first pay packet for the current tax year (i.e. after 1 April 2022).

DataPay will add together:

the employee’s estimated total gross salary or wage from their start date until the end of the current tax year
your total estimated gross employer contributions you will make to their superannuation fund from their start date until end of the current tax year.

Step 2: Work out the ESCT rate using the table below.

Employee’s annual income (Step 1)	ESCT rate from 1 April (Step 2)
$0 to $16,800	10.5%
$16,801 to $57,600	17.5%
$57,601 to $84,000	30%
$84,001 to $216,000	33%
$216,001 upwards	39%

Example

Jack commenced work on 17 July 2021. He earns $380.00 gross per week with employer superannuation contributions of $11.40 (3%) per week.

1. The calculation to estimate the income earned for the tax year 1 April 2021 to 31 March 2022 will be based on the earnings expected between 17/7/2021 to 31/3/2022 (257 days).

2. Gross income + Superannuation Contributions / days earnings x days in tax year.

3. ($380.00 + $11.40) / 7 x 257 = $14,369.97 ESCT rate threshold amount.

4. $14,369.97 is between $0 - $16,800, the ESCT rate for the current tax year is 10.5%.

Remember, the ESCT rate of 10.5% will remain for the whole tax year and will not change regardless of any change to Jack’s wages during the current tax year.

Resources to help

There is more information about ESCT on the Inland Revenue website, including a tool to help employers work out the ESCT rate for each employee.

Disclaimer: The content of this document is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose. We expressly disclaim any liability to you or your business in relation to the information contained in this document, and you rely on any information solely at your own risk.

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