KiwiSaver at 3.5% (and 4% from 2028): planning payroll cash flow

Every New Zealand employer with staff in KiwiSaver felt a change in April 2026. The compulsory employer contribution stepped up from 3% to 3.5% of gross pay, and it’s scheduled to rise again to 4% in April 2028. Half a percentage point sounds small. Spread across a full payroll for a full year, and paid alongside every PAYE payment, it is not small at all. This guide explains what changed, what’s coming, and how to plan the cash so it never turns into a payroll-week problem.

What changed on 1 April 2026?

Inland Revenue’s KiwiSaver changes page sets it out:

• The default employee contribution rate rose to 3.5%.
• The matching compulsory employer contribution rose to 3.5% of gross salary or wages.
• Employees can apply for a temporary rate reduction, keeping their own contribution at 3% for 3 to 12 months, and can reapply as many times as they like. Employers must process those requests.
• 16 and 17 year olds now qualify for employer contributions matching their own at the applicable rate.

Inland Revenue’s employer page confirms the lowest rate for an employer’s contribution is now 3.5% of an employee’s gross salary or wages, unless the employee is on a temporary rate reduction.

What’s coming in 2028?

From 1 April 2028, Inland Revenue says rates increase again to 4% for both employees and employers. That’s a second step-up, and it’s worth planning for now — particularly if you’re signing multi-year contracts or setting prices today.

How much does it actually cost?

Work it out for your own business. A simple method:

1. Take your annual gross wages for staff who contribute to KiwiSaver.
2. Multiply by 0.5% to see the extra cost of the 2026 step-up.
3. Multiply by another 0.5% to see the further cost from 2028.

Illustrative only: a business with $800,000 of eligible annual gross wages pays an extra $4,000 a year from April 2026 compared with the old minimum, and another $4,000 a year on top from April 2028. Inland Revenue also requires ESCT — a tax on employer contributions — to be deducted from them, and your payroll software calculates it — so the true cost is a little higher than the headline percentage. Ask your accountant to confirm the full figure.

Why does this affect cash flow, not just profit?

KiwiSaver contributions are paid to Inland Revenue with PAYE. For most employers, that’s by the 20th of the month after payday. So the extra cost doesn’t arrive as one annual bill — it’s spread across every PAYE payment. That’s helpful for budgeting, but it also means:

• each PAYE payment is a little larger than it used to be;
• businesses that were already tight on PAYE dates feel it immediately;
• if PAYE money is mixed into the trading account, it’s easier to spend by accident.

Inland Revenue also requires employment information to be filed within 2 working days of each payday when filing electronically, so payroll records need to reflect the new rate accurately.

How should I adjust budgets and pricing?

• Update your payroll software — most did this automatically, but check the rates on recent payslips.
• Add the change to your annual budget as a line item, not a rounding error.
• Review pricing. If your margins are thin, the step-up may justify a small price adjustment. The 2028 increase gives you time to plan a second one.
• Check long-term quotes and contracts. If you’re pricing work that runs past April 2028, include the higher rate.
• Tell staff what’s changing. Some employees may choose a temporary rate reduction; employers must process those.

How do I keep PAYE and KiwiSaver money safe?

The same separate-account habit that works for GST works for PAYE:

1. On payday, calculate PAYE, KiwiSaver deductions and employer contributions.
2. Transfer that total into a separate tax account the same day.
3. Pay Inland Revenue from that account by the due date.

Our GST cash buffer guide explains the set-aside method in more detail. Combined, they mean payroll taxes are never competing with suppliers for the same dollars.

What if payroll is already tight?

A larger wage bill can tip a business that was just coping into regular payroll-week stress. If that’s you:

• Look at the cash cycle. Faster invoicing and follow-up can bring money in sooner.
• Consider a revolving facility. A business line of credit set up while things are calm can cover payroll gaps instantly.
• Use short-term funding for one-off gaps. A cash flow loan can bridge a specific week; see payroll due this week for the step-by-step.

If you’d like to see what’s possible before a gap appears, a quick enquiry involves no credit check.

What does this mean for hiring decisions?

The step-ups don’t change whether hiring is the right call, but they do change the maths. When you work out what a new role costs, include gross wages, employer KiwiSaver at the current rate, the higher 2028 rate if the role will run that long, ACC levies, holiday pay and the cost of equipment and training. A realistic all-in figure helps you price your services correctly and avoids the slow squeeze that comes from underestimating staff costs year after year.

Can employers contribute more than the minimum?

Yes. The 3.5% figure is a floor, not a ceiling, and some employers offer more as part of their pay package to attract and keep staff. If you’re considering it, treat the extra contribution like any other wage increase: cost it across the year, include the tax that applies to employer contributions and decide whether it’s sustainable through your quietest months. Some employers also have “total remuneration” arrangements where the contribution comes out of an agreed package — check your employment agreements and get advice before changing how contributions are calculated, because the rules on what’s allowed are specific.

What about young workers and part-timers?

The extension of employer contributions to 16 and 17 year olds is easy to miss, especially in hospitality, retail and seasonal work where younger staff are common. Check that your payroll treats them correctly. The same applies to casual and part-time staff who are KiwiSaver members — the contribution is calculated on their gross pay, whatever their hours.

A quick employer checklist

• Payroll software applying 3.5% employer contributions since 1 April 2026
• Temporary rate reduction requests processed correctly
• 16 and 17 year old staff receiving employer contributions where eligible
• Budget updated for 2026 and the 2028 step-up
• Prices and long contracts reviewed
• PAYE and KiwiSaver moved to a separate account each payday
• A plan B for tight payroll weeks

Illustrative example: a Hamilton workshop

This example is illustrative only. A Hamilton engineering workshop with 18 staff budgets for the 2026 step-up in February, adds a small price adjustment for new quotes and starts moving PAYE and KiwiSaver into a separate account each payday. It also sets up a modest line of credit while trading is steady. When two large customers pay late in winter, the line covers one payroll for nine days. Without the earlier planning, the same delay would have meant an urgent loan application on payroll eve.

Wage bill growing faster than the bank balance?

Higher payroll costs are a sign of a business that employs people and pays them properly — but they still need funding when timing goes wrong. If payroll is looking tight, a short, accurate enquiry is the quickest way to see your options. It takes about a minute and there’s no credit check when you first enquire. We don’t shotgun your details across a set of lenders; one team reads them and a real person calls you. Please give us your true payroll figures so we can match the right option first time.

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