Kiwisaver for Business
As at 31 Mar 2017, 2.7 million people had Kiwisaver accounts with a total of $41 billion invested. As a Kiwisaver investor, in exchange for tying your savings up until you’re 65, the government contribute up to $521 per year to your account. If you are an employee, they also force your employer to match your contributions up to 3% of your gross salary.
It is a good deal for employees, but what does it mean for you if you’re running your own business?
Self-Employed Kiwisaver Accounts
If you are not receiving a PAYE deducted salary, you can still invest in Kiwisaver. You can open a Kiwisaver account with any provider of your choice and pay as much as you like directly into it. For each dollar you invest up to $1,042.86 per year ($20 per week), the government contribute 50 cents. That is $521.43 per year from the government. In my view, it is silly not to take the free money.
The Kiwisaver year runs from 1 Jul to 30 Jun. You can either pay regularly throughout the year or in an annual lump sum. Just make sure you pay in at least $1043 between 1 Jul and 30 Jun each year to receive the government contribution you’re entitled to.
Paying Yourself a PAYE Deducted Salary
When Kiwisaver first started in 2007, there was some benefit to self-employed people to put themselves on PAYE and make the employer and employee Kiwisaver contributions. The government paid $20 per week towards the employer’s contribution. That has gone now, and any employer contributions are a direct cost to the business.
While the employer contributions are a tax-deductible expense, the employee is tax on them. The employee is effectively paying their net income into the fund. The overall effect for a business owner-operator paying themselves, is a tax-deductible cost to the business and an after-tax contribution by the employee. If the business has a higher income tax rate than the individual, the business’s tax deduction for the contribution cost will outweigh the employee’s tax deduction taken from the contribution. Other than that possible tax rate mismatch, there is no overall net advantage. Given that the individual will often have a higher tax rate than the business anyway, there is usually no advantage in paying into Kiwisaver via the PAYE system.
Kiwisaver Contributions on Staff Wages
If you are employing staff, you must match their Kiwisaver deductions up to 3% of their wages. An employee can choose to pay up to 8% of their wages into Kiwisaver but the employer only matches the first 3%.
The employee’s Kiwisaver deductions are deducted along with their tax. The employer contributions are added on top and both are paid to IRD along with the other PAYE deductions. For small businesses, this is all due on the 20th of the month following the pay.