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As businesses prepare for the 2026–27 financial year, several employment-related changes will affect payroll costs, HR compliance, and workforce planning.
The most significant developments relate to KiwiSaver contribution increases, new employer obligations for younger workers, and a confirmed rise in the minimum wage. Together, these changes will increase the overall cost of employment, making early preparation essential.
KiwiSaver Contribution Increases
From 1 April 2026, the default KiwiSaver contribution rate will increase to 3.5% (from 3%) for both employers and employees. This change is part of a staged uplift announced in Budget 2025, with a further increase to 4% scheduled for 1 April 2028. Employers should expect higher payroll costs for employees contributing at the default rate.
To ease the impact on employees, a new temporary contribution rate reduction will be available. From 1 February 2026, employees may apply to Inland Revenue to remain at the 3% rate for a period of three to twelve months. Approved reductions will take effect from the first pay period after 1 April 2026.
Inland Revenue will notify employers of approved reductions. If an employee has an approved rate reduction, the employer's compulsory contribution obligation for that period will also be at the reduced rate. This flexibility may result in varying employer contribution rates across the workforce and will require payroll systems to be updated accordingly.
Managing the Cost Increase: Total Remuneration
While the default legal position is that compulsory employer KiwiSaver contributions are paid in addition to an employee’s salary or wages, businesses can manage this cost increase through a "total remuneration" approach.
This involves structuring an employee’s pay so that their salary package is inclusive of the employer’s KiwiSaver contribution. For this to be legally effective, the employment agreement must be explicit.
This structure is permitted by law and allows businesses to forecast their total wage costs with certainty. Employers should review their current employment agreement templates and consider updating them for new employees, or negotiating a variation with existing employees, to reflect this approach.
Employer Contributions for 16–17-Year-Olds
From 1 April 2026, employers will be required to make KiwiSaver employer contributions for employees aged 16 and 17 who are KiwiSaver members. Currently, compulsory employer contributions apply only from age 18.
Auto-enrolment into KiwiSaver will remain at 18, meaning employer contributions for younger workers will apply only where the employee has actively opted in. Businesses employing younger staff, particularly in retail, hospitality, and entry-level roles, should budget for increased payroll costs from April 2026.
Minimum Wage Increase
The adult minimum wage will rise to $23.95 per hour from 1 April 2026, up from $23.50. The starting-out and training minimum wage will increase to $19.16 per hour, remaining at 80% of the adult minimum wage.
Around 122,500 workers are expected to benefit from the increase. For a full-time employee on the adult minimum wage, this represents an additional $18 per week, or $936 per year before tax. Employers with multiple minimum-wage staff should review labour budgets early and consider potential flow-on effects across pay structures.
It’s essential to remember that an employer's KiwiSaver contribution cannot be used to meet minimum wage obligations. An employee’s gross wages, before any KiwiSaver deduction or employer contribution is accounted for, must be at or above the minimum wage for all hours worked. This applies even where a total remuneration package is in place.
HR Trends and Compliance Risks to Watch
Beyond confirmed cost increases, several HR risk areas continue to attract regulatory attention. Holidays Act compliance remains a priority, particularly around accurate leave calculations. Worker classification is under ongoing scrutiny, especially where contractors or gig workers are used.
Privacy, workplace monitoring, and flexible work practices also require clear policies and transparent communication, even where no new legislation is imminen.
Preparing Your Business
With multiple changes taking effect within a short timeframe, businesses should update payroll systems, review employment agreements, communicate changes to staff, and complete financial modelling ahead of the new financial year. Early preparation will help businesses manage rising labour costs while maintaining compliance and workforce stability in 2026.
Contact Kerryn Strong to learn more.
