KiwiSaver went up to 3.5%: what it really costs your business

Half a percent doesn’t sound like much. Mr agrees — until you multiply it across a whole payroll for a whole year, add the tax that comes with it, and remember there’s another half a percent coming in 2028. Here’s how to work out what the KiwiSaver change really costs your business and what to do about it.

What changed, and when?

According to Inland Revenue:

• From 1 April 2026, contributions at the default rate of 3% rose automatically to 3.5%, for both the employee’s contribution and the employer’s.
• From 1 April 2028, the default rate is due to rise again, to 4%, for both.

IRD’s employer guidance puts it plainly: the lowest rate for your employer contribution is now 3.5% of the employee’s gross salary or wages, unless the employee is on a temporary rate reduction. Employees can apply for a temporary rate reduction for between 3 and 12 months, after which they reset to the default rate — and if an employee has one, you can choose to lower your employer contribution to 3% as well.

Why the true cost is more than half a percent

Employer KiwiSaver contributions are subject to employer superannuation contribution tax (ESCT). ESCT is deducted from your contribution and paid to IRD with your other employer deductions. Depending on how your payroll handles it, the extra contribution and its tax mean your total employment cost rises by more than the headline half-percent.

Then there’s the knock-on effect:

• if you’ve agreed total remuneration packages that include KiwiSaver, employees may see lower take-home pay, which can prompt pay conversations;
• if you’ve priced long-term contracts before the change, your margins on those contracts have shrunk;
• if you’re a large employer, the step may push other costs and payment schedules into focus.

How to work out your own cost

A simple method you can do in ten minutes:

1. Find your annual gross payroll for employees who are KiwiSaver members contributing at the default rate. Your payroll report will show this.
2. Multiply by 0.5%. That’s the extra employer contribution for a full year at 3.5% versus 3%.
3. Add the ESCT effect. Ask your payroll software or accountant for the effective figure for your team; it depends on each employee’s ESCT rate.
4. Repeat for 2028, when the rate moves from 3.5% to 4%.

An illustrative example, with invented numbers: a business with $1,000,000 of eligible annual payroll would pay an extra $5,000 a year in employer contributions from April 2026, before ESCT and any knock-on effects — and roughly another $5,000 on top from April 2028.

	Default rate	Extra employer contribution on $1m eligible payroll (illustrative)
Up to 31 March 2026	3%	—
From 1 April 2026	3.5%	About $5,000 a year, plus ESCT effect
From 1 April 2028	4%	About $10,000 a year versus the old rate, plus ESCT effect

Not life-changing for most businesses — but not nothing, especially in hospitality, horticulture, aged care, cleaning and other labour-heavy sectors with thin margins.

Where does the cash flow bite?

Employer deductions are paid in arrears:

• Small to medium employers (annual PAYE and ESCT under $500,000) pay by the 20th of the following month.
• Large employers ($500,000 or more) pay twice a month — by the 20th for pays on the 1st to 15th, and by the 5th of the next month for pays from the 16th to month-end, with 16–31 December due on 15 January.

So the increase shows up as slightly larger IRD payments every month. On its own that’s manageable. Combined with a seasonal dip, a big provisional tax instalment or a late-paying customer, it’s one more thing that can tip a tight month into a shortfall. The tax due dates tool shows when your employer deductions fall alongside GST and provisional tax.

What should I do now?

Update payroll settings

Check that your payroll system applied the new default from 1 April 2026 for employees at the default rate. Most cloud payroll providers did this automatically, but check — underpaying employer contributions creates a debt to fix later.

Re-run your wage budget

Add the extra contribution and ESCT effect to your annual budget. Then do the same for 2028 in your longer-term plan.

Review pricing

If your margins were already thin, half a percent of payroll matters. Consider:

• an annual price review that explicitly includes employment cost increases;
• clauses in longer contracts that allow for statutory cost changes;
• reviewing which jobs or products are actually profitable once full labour costs are counted.

Talk to your team

Employees at the default rate also see a larger deduction from their pay. Some will be pleased (more saved), some will notice the smaller take-home. Being open about it avoids misunderstandings.

Watch the knock-on to tax arrears

Mr sees businesses fall behind on employer deductions when cash gets tight, because payroll feels non-negotiable and the IRD payment feels like it can wait. It can’t — employer deductions attract an ongoing monthly penalty when unpaid, and IRD has been focused on overdue employer debt in 2026. Read I’m behind on PAYE and KiwiSaver — what now? if that’s already happening.

When does funding make sense?

The KiwiSaver increase is an ongoing cost, so the main fix is pricing and budgeting, not borrowing. But funding can make sense where there’s a timing problem:

• a long contract priced before April 2026 that now runs at a lower margin until it ends;
• a seasonal business where the extra cost lands in the quiet months;
• a growing business hiring ahead of new revenue — see growing too fast: the cash crunch.

In those cases, a short-term facility that bridges to the end of the contract or the next busy season can be sensible. If you’d like to explore that, start a short enquiry — there’s no credit check to ask.

A quick checklist for employers

• Payroll applying 3.5% for default-rate employees since 1 April 2026.
• Annual budget updated, including the ESCT effect.
• 2028 step pencilled into long-term plans and contract pricing.
• Prices reviewed for labour-heavy products and services.
• Employer deductions set aside on every payday, in a separate account.
• Monthly check that IRD payments are up to date in myIR.

Questions employers ask Mr about the change

“Do I have to contribute 3.5% for every employee?” For employees who are KiwiSaver members, the lowest employer contribution rate is now 3.5% of gross salary or wages, unless the employee is on a temporary rate reduction — in which case you can choose to drop yours to 3%. Some employees may not be members or may have other arrangements; your payroll records will show who’s who.

“Can I include the increase in a total remuneration package?” Some employers structure pay on a total remuneration basis. Whether and how you can do that depends on employment agreements and the law. Get advice before changing anything, and talk to staff openly.

“Does it affect contractors?” KiwiSaver employer contributions apply to employees, not genuine independent contractors. Make sure the people you treat as contractors really are contractors — misclassification brings bigger problems than KiwiSaver.

“Will this change the timing of my IRD payments?” No — your employer deductions are due on the same dates as before, just slightly larger. Small and medium employers pay by the 20th of the following month; large employers pay twice monthly.

“Should I set aside more each payday?” Yes. If you already move PAYE and KiwiSaver into a separate account when you run payroll, update the amount so it includes the higher contribution and ESCT. That keeps the bigger IRD payment from surprising you on the 20th.

Ask Mr about payroll pressure

If the extra cost has arrived at an awkward moment, or payroll tax is starting to slip, it’s worth a conversation before it grows. Tell us your payroll size, the timing gap you’re facing and what’s behind it. There’s no credit check to ask, your enquiry stays with one person rather than going to a crowd of lenders, and a real specialist will help you see whether funding is the right tool or whether a pricing fix will do more.

Please be accurate about any employer deductions already overdue — it changes which options suit. See if your business qualifies.