How to make KiwiSaver employer contributions for unpaid parental leave
Data from the Retirement Commission reveals that the average KiwiSaver balance for women is 25% lower than that of men, with the gap widening as we age. One contributing factor to this disparity is the interruption of retirement savings during periods of parental leave, where employer contributions often cease, leading to a substantial shortfall over time.
More New Zealand employers recognise their opportunity to tackle the KiwiSaver gender gap and make voluntary contributions for unpaid parental leave.
Employers are stepping up
Encouragingly, 28% of the 330 organisations listed on the New Zealand Parental Leave Register provide KiwiSaver employer contributions equivalent to what an employee would have received during parental leave (up to 12 months). This is a significant step forward in supporting parents' financial security.
The challenge for employers
Many employers have shared that calculating and making these voluntary contributions is cumbersome and manual, creating administrative challenges and potential inaccuracies.
In our experience, almost all employers have opted to make a lump sum KiwiSaver contribution once the employee returns to work. While well-intentioned, this approach presents three main issues:
Conditionality: In most cases, the contribution is conditional on the employee returning to work. There are exceptions—AIA, for instance, still makes the lump sum contribution even if the employee does not return—but such cases are rare.
Loss of compounding growth: Employees miss out on up to 12 months of compounding investment returns during their leave, reducing long-term retirement savings.
Administrative burden: For smaller employers, this can fall into the “too hard basket.” The current system lacks an easy, compliant mechanism to facilitate contributions during unpaid leave.
Current workarounds
Employers have developed a variety of manual or workaround approaches, each with its own limitations:
Filing a one-off contribution via IRD paperwork
This approach involves paying the employees directly and trusting them to contribute the funds themselves. ESCT is not paid and relies on employees not to redirect funds at a financially vulnerable time.
Offering a 2-for-1 matching scheme when employees return for a duration equivalent to their leave, which can disadvantage those on reduced hours, even temporarily.
Manually overriding KiwiSaver contribution settings (e.g. switching from a percentage to a fixed amount), which requires careful tracking and reversion when the employee returns.
Potential solution
The solution lies in improved IRD systems design. Currently, there is no standard mechanism for employers to make voluntary KiwiSaver contributions during periods of no income, such as during parental leave or long-term unpaid sick leave.
Voluntary KiwiSaver employer contributions could be modelled on voluntary student loan repayments. We advocate for the addition of a specified attribute or filing line for voluntary employer KiwiSaver contributions, which would offer employers a simple, compliant method of continuing to support employees' long-term financial well-being during parental leave.
The KiwiSaver Employer Contribution Calculator
In the meantime, we’ve developed the Parental Leave KiwiSaver Employer Contribution Calculator, a tool designed to simplify the calculation for employers wishing to make voluntary KiwiSaver contributions during an employee's parental leave. Key features include:
Flexible calculations: Employers can choose whether to include or exclude government contributions made during government-paid parental leave.
From 1 July 2024, Inland Revenue started making employer contributions of 3% on government-paid parental leave.
Accurate deductions: The tool automatically deducts any contributions the employer will already be making during employer-paid parental leave, ensuring that the additional voluntary contribution is appropriate.
Show the value: The tool calculates how much the employer contribution could be worth in 30 years, so employers can effectively communicate the value of the voluntary contribution to employees.
Call to action: share your feedback
Crayon is committed to continuous improvement and values the insights of employers and HR professionals. We invite you to explore the KiwiSaver Employer Contribution Calculator and share your experiences. Your feedback is crucial in refining this tool to better serve the needs of both employers and employees.
We are also in dialogue with the Retirement Commission about their KiwiSaver review and the potential recommendations they could put forward to make it easier for employers to make voluntary KiwiSaver contributions when an employee is not earning an income.
We’d love to hear from you about:
How do you currently manage KiwiSaver contributions during parental leave?
What challenges have you faced?
What tools/changes would make it easier for you?
Join the discussion and help us drive positive change in workplace benefits and financial well-being.
For further enquiries
While we work to keep our information current, the last word lies with the relevant government agencies. Contact Inland Revenue (IRD) about making KiwiSaver contributions and government-paid parental leave.
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Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 17 May 2025.
Stephanie Pow
Founder & CEO of Crayon
