If you use inclusive (total remuneration) pay rates, this article is for you.

Some employment agreements specify a total remuneration figure that includes the employer's KiwiSaver contribution. If that's how your agreements work, the upcoming KiwiSaver changes need a bit more thought.

What's happening

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:

Option 1: 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%.

Option 2: 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.

Option 3: 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.

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:

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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.

What to do

1. Check your employment agreements. Look at whether they specify a total remuneration amount inclusive of employer KiwiSaver. If you're not sure, now is a good time to check.
2. Decide on your approach. Consider whether you want to absorb the cost, renegotiate, or find a middle ground. If you have multiple employees on total remuneration arrangements, you'll want a consistent approach.
3. Talk to your employees. If you're planning to renegotiate, have the conversation early. Be upfront about the change and what it means. Remember - you cannot unilaterally reduce anyone's base pay.
4. Document any changes. If you agree to a new base rate, make sure this is recorded in writing.
5. Update PaySauce. Once you've agreed any new base rates, update the employee's pay settings in PaySauce. Step-by-step instructions are here: [link to help article].

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.

What we can and can't help with

Our support team can help you with how to make changes in PaySauce - updating pay rates, adjusting settings, and navigating the platform. However, because these changes involve employment agreements and negotiations specific to your business, we're not able to calculate new rates or update pay settings on your behalf. If you need advice on employment agreements, we recommend speaking with an employment advisor or lawyer.

Helpful links

• How to calculate inclusive rates in PaySauce
• How to update employee pay rates in PaySauce
• Download our spreadsheet calculator for new rates
• More information about KiwiSaver changes and FAQs

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