Overview
This article explains why processing a KiwiSaver opt-out on an employee’s first day often leads to letters from the IRD.
Under the KiwiSaver Act 2006, a "Day 1" opt-out is not valid. Employers are required to automatically enrol eligible new employees and start deductions before an opt-out can be processed. The letters from the IRD are automated notifications flagging that the initial enrolment step was skipped.
The goal of this article is to clarify the correct timeline for processing opt-outs with new starters and how to adjust the workflow in order to remain compliant.
The Core Conflict
The conflict arises from a difference between the employer's process and the official timeline. New Zealand’s legislation (addressed in the KiwiSaver Act 2006) includes a mandatory "holding period" for new employees, often called a "blackout" period. An employee cannot validly opt out of KiwiSaver during their first 13 days of employment.
The official opt-out window starts on Day 14. Consequently, processing an opt-out on Day 1 is invalid. When the IRD is notified of a new eligible employee, their automated system receives the IR346K and flags this employee as ‘automatically enrolled’ in KiwiSaver. This creates an expectation of contributions. When payday filing gets sent to the IRD, the information shows no KiwiSaver deduction for this new employee, detecting a mismatch. This triggers a letter instructing the employer to start deductions immediately.
This creates a contradiction between the employer’s data (that shows the employee as opted out) and the IRD system (employee appears as automatically enrolled), making the employer non-compliant.
To summarise the events, the IRD letter will be triggered when their system detects that an employer has:
- Filed an IR346K (enrolling the employee), but…
- Has not remitted the corresponding contributions, and…
- The employee has not filed a valid KS10 (opt-out request) within the valid window.
Suggested Workflow
To ensure compliance and a smooth onboarding process, we recommend following this workflow for any new employee eligible for automatic enrolment (generally those aged 18-65 who are not casual employees working less than 28 days).
- In Tempus, while managing this onboarding process through our New User Form, if ‘Opt-Out’ is selected, a pop-up window will appear informing about the Day-1 opt out rules. The form is designed to not let you provide an invalid KiwiSaver status.
- The employer must start making KiwiSaver deductions from the employee’s first payment of salary or wages. The default deduction rate is 3% unless the employee provides a KS2 form specifying a different rate.
- The employee will then need to provide the KS10 form directly to the IRD in order to start their opt-out process.
- We will receive notification from the IRD if this opt out was processed successfully. The IRD will hold the new employee’s contributions that were made during the ‘blackout’ period and will refund them directly to the employee. The employer’s CEC payments will also be refunded by the IRD.
Important: Any attempt by an employer/employee to action an opt-out during this blackout time will be considered invalid.
Differences in between the KS2 and KS10
KS2 (Deduction Form): Its purpose is to start or change deductions. An employee gives this form to their employer to:
- Join (Opt-In): Existing employees who are not eligible for auto-enrolment and wants to join KiwiSaver.
- Set Contribution Rate other than the default rate of 3%.
- Notify of Existing Membership to a new employer and instruct them to start deductions at their chosen rate.
- Notify of Savings Suspension.
KS10 (Opt-Out Request): This is the only form that can be used to opt-out of KiwiSaver.
- Its use is explicitly limited to automatically enrolled new employees.
- It is only valid between Day 14 and Day 56 of a new employment.
- It’s part of the employee’s responsibility to provide this form. It is considered a personal tax matter.