Sometimes an agreed pay rate needs to include additional components like the employer's KiwiSaver contribution or holiday pay. When this happens, you need to calculate the correct base rate so that when these components are added, the total matches the agreed amount.
The key principle: We don't simply subtract the percentage from the total rate. Instead, we need to find the base value that, when the percentage is added to it, equals the agreed total rate.
Important considerations:
The calculated base rate must be at least minimum wage
If both KiwiSaver and holiday pay are inclusive, these must be calculated one after the other in the right order (see below)
Each component (base pay, employer KiwiSaver contribution, holiday pay) must be shown separately on the payslip
KiwiSaver inclusive rates (3%)
When an employee's pay rate includes the employer's KiwiSaver contribution, this is called a salary sacrifice. The employee is effectively paying for both their own KiwiSaver deduction and the employer contribution from their total earnings.
To set this up correctly, the base pay must be calculated so that when the 3% employer contribution is added, it equals the agreed total rate.
Formula: Divide the total rate by 1.03
Hourly rate example
If $29 per hour is inclusive of the employer KiwiSaver contribution:
$29 ÷ 1.03 = $28.16 (rounded from $28.155)
Check: $28.16 + 3% = $29.00 ✓
Salary example
If $75,000 is inclusive of the employer KiwiSaver contribution:
$75,000 ÷ 1.03 = $72,815.53 (round to $72,815.54)
Check: $72,815.54 + 3% = $75,000 ✓
Holiday pay-inclusive rates (8%)
Some employment agreements specify that holiday pay is included within the hourly rate rather than paid separately when leave is taken. This is common for casual employees.
To calculate the base rate when 8% holiday pay is inclusive, use the same principle but with the holiday pay percentage.
Formula: Divide the total rate by 1.08
Hourly rate example
If $30 per hour is inclusive of 8% holiday pay:
$30 ÷ 1.08 = $27.78 (rounded from $27.777)
Check: $27.78 + 8% = $30.00 ✓
Salary example
If $60,000 is inclusive of 8% holiday pay:
$60,000 ÷ 1.08 = $55,555.56
Check: $55,555.56 + 8% = $60,000 ✓
When both are inclusive
If a rate includes both the employer's KiwiSaver contribution and holiday pay, these must be calculated one after the other in the correct order, because KiwiSaver is calculated on gross earnings, which includes holiday pay.
Order of calculation:
Holiday pay = 8% of base rate
KiwiSaver = 3% of gross earnings (base + holiday pay)
Formula: Divide the total rate by 1.1124 (which is 1.08 × 1.03)
Example
$35 per hour inclusive of both 8% holiday pay and 3% employer KiwiSaver:
$35 ÷ 1.1124 = $31.47 (base rate)
Holiday pay: 8% of $31.47 = $2.52
Gross earnings: $31.47 + $2.52 = $33.99
Employer KiwiSaver: 3% of $33.99 = $1.02
Total: $31.47 + $2.52 + $1.02 = $35.01 ✓
KiwiSaver increases: 1 April 2026
From 1 April 2026, the minimum employer KiwiSaver contribution increases from 3% to 3.5%. PaySauce calculates the employer contribution based on the employee's base rate. If your employee's base rate stays the same, your total cost goes up because the employer contribution is now calculated at a higher percentage.
This means if your employment agreement was set up on the basis of a total cost inclusive of 3% employer KiwiSaver, the maths no longer adds up at 3.5%.
Your options
You essentially have three choices:
Absorb the increase. Keep the employee's base rate the same and accept that your total employment cost increases by the additional 0.5% employer contribution. This is the simplest approach and requires no change to employment agreements. The gross amount of their total remuneration package has essentially increased by 0.5%.
Renegotiate the total rate. If you want to keep the same total remuneration amount, you'll need to agree a lower base rate of pay with your employee to account for the higher employer contribution. Under New Zealand employment law, you cannot reduce an employee's base pay without their agreement: this must be negotiated and documented as a variation to their employment agreement.
Agree a new arrangement. You and your employee might agree on something in between, for example, splitting the difference, or moving away from a total remuneration model altogether.
What PaySauce will do automatically
From 1 April 2026, PaySauce will automatically apply the new 3.5% employer KiwiSaver contribution rate, so you don't need to update the rate yourself. However, you will still need to decide which of the three options above applies to your situation. If you choose to renegotiate the base rate, you will need to update this in PaySauce yourself, as this depends on what you and your employee have agreed.
How the maths works
Under total remuneration, the base rate is calculated by dividing the agreed total rate by (1 + employer KiwiSaver rate).
At 3% employer contribution: base rate = (total rate) ÷ 1.03
At 3.5% employer contribution: base rate = (total rate) ÷ 1.035
For example, take an employee on a total rate of $29.00 per hour:
| At 3% | At 3.5% |
Total rate | $29.00 | $29.00 |
Base rate | $28.16 ($29 ÷ 1.03) | $28.02 ($29 ÷ 1.035) |
Employer KiwiSaver | $0.84 | $0.98 |
If you keep the base rate at $28.16 and the employer contribution moves to 3.5%, your total cost increases to $29.14 ($28.16 × 1.035).
If you want to keep the total at $29.00, the base rate would need to drop to $28.02 - a change the employee would need to agree to.
Why can't the total rate just be the total rate?
Even if you and your employee agree on a total remuneration figure that includes the employer KiwiSaver contribution, that total still needs to be broken down into its component parts. The base rate of pay and the employer KiwiSaver contribution are different components - they're taxed differently and filed separately to IRD. So when you agree to a total amount inclusive of KiwiSaver, what you're actually agreeing to is a specific base rate of pay that, when the employer KiwiSaver contribution is added on top, brings you to the total. That's why when the contribution rate changes from 3% to 3.5%, the base rate has to shift to keep the same total - or the total goes up.
What about rate reductions?
If an employee applies to IRD and gets an approved temporary rate reduction (keeping their employee contribution at 3%), you as the employer can also choose to keep your employer contribution at 3%. In that case, you wouldn't need to change the base rate at all during the reduction period. We'll have an option available in PaySauce for this - we'll share more details closer to the time.
Keep an eye on 2028
The employer contribution rate is set to increase again to 4% on 1 April 2028. If you continue using total remuneration arrangements, you'll face this same decision again in two years. It may be worth considering whether total remuneration is still the right model for your business going forward.
Calculate changes
We've created a spreadsheet calculator to help you work through the impact of the KiwiSaver rate change on your total remuneration arrangements. You can download it, enter your current inclusive rates, and see both options: absorbing the increase or adjusting the base rate, side by side. This tool is provided for informational purposes only to help you assess potential changes. PaySauce accepts no liability for errors in the calculator or decisions made based on its outputs. We recommend confirming any changes with your employment advisor before adjusting employee pay.