KiwiSaver: Forgot to pay KiwiSaver? Talk to the IRD

Late payment penalties apply for any backdated employer contributions. Photo / Thinkstock

Q: Several years after a new staff member joined our firm he realised we haven't been making any KiwiSaver deductions or employer contributions. We recognise that we're in the wrong but want to do right by him. What can we do and are there any penalties associated with failing to make KiwiSaver payments?

A: Employers are a crucial cog in the KiwiSaver wheel. It is their job to deduct KiwiSaver contributions from pay packets and send it on to the IRD along with PAYE deductions and the employer contributions. The IRD forwards payments on to providers.

Employers not doing this can have a real impact on investment returns and member tax credits paid to their KiwiSaving staff.

When people change jobs, anyone eligible for KiwiSaver will be automatically enrolled and the new boss will begin deducting contributions and chipping in its contribution. New staff then have eight weeks to opt out of KiwiSaver.

Those already in a fund when switching jobs will have deductions kick off straight away at the default rate of 3 per cent, unless employers are told to make deductions at the higher rate - either 4 per cent or 8 per cent - or shown a contributions holiday form.

In both instances new staff need to fill out a KS-2, to get contributions under way. This form stays on file with the employer until seven years after staff leave a job.

I asked the IRD what happens when an employer unintentionally neglects to make deductions and contributions to KiwiSaver.

"It really depends on whether the employer was required to make KiwiSaver deductions or employer contributions," says the IRD.

"The first thing you need to do is get in contact with us.

"If your liability to pay employer contributions is backdated then late payment penalties would be applied to each period that requires an adjustment and Inland Revenue may apply 'failure to deduct' penalties. Doing nothing will only make the problem worse."

It is up to bosses to keep a record of staff who are KiwiSaver members, their contribution rate, the amounts deducted, employer contributions made and any notification of contributions holidays or opt-outs.

For details on enrolling new staff see the KiwiSaver Employer Guide put out by the IRD.

The guide has a section on penalties. For employees concerned about KiwiSaver payments, check My KiwiSaver, to see if contributions are being received by the IRD and forwarded.