The Short Version
Parental leave is where KiwiSaver most often goes quietly wrong, because the default is that nothing happens. Contributions from paid parental leave payments are optional, your employer's contributions usually stop while you are not being paid, and the only thing that keeps your savings growing is a decision you have to make on purpose.
Three situations behave differently: paid parental leave paid by Inland Revenue, a period where your employer keeps paying you, and unpaid leave. Which one you are in decides who can deduct, who can contribute, and what you need to do.
Paid Parental Leave — You Have To Ask
If you are receiving paid parental leave payments, KiwiSaver contributions are not deducted by default. You can ask Inland Revenue to deduct them — tell them when you apply for paid parental leave, or later in myIR if you are already being paid.
- If you choose deductions, Inland Revenue also makes employer contributions of 3.5%. That is the single most valuable part of the arrangement, because you are getting the employer match on a payment that is not coming from an employer.
- You can stop the contributions at any time in myIR. There is no penalty and no lock-in.
- Alternatively, you can pay contributions directly to your provider and arrange it with them instead of going through Inland Revenue.
The order matters. If you leave the box unticked, you get nothing for that period — no member contributions and no employer contributions — and the contribution year (1 July to 30 June) keeps running.
If Your Employer Keeps Paying You
Some employers top up parental leave payments, pay a period of full salary, or keep paying certain allowances. Where you continue to receive salary or wages from your employer while on parental leave, the employer keeps deducting KiwiSaver contributions and keeps making compulsory employer contributions — unless you have a valid savings suspension. When you return to work, deductions and contributions continue as before.
This is the neatest outcome: nothing changes, and the contribution year keeps filling up as usual.
Unpaid Leave — Contributions Normally Stop
On unpaid parental leave there is no salary or wages, so there is nothing to deduct. Contributions normally stop, and your employer's compulsory contribution stops with them. An employer who chooses to keep contributing has two documented options:
- Include the contribution in the regular employer information. The contribution goes through the normal employer return with the employee's gross earnings shown as zero, and Inland Revenue forwards it to the provider.
- Pay a lump sum after the leave ends. Work out what the employee would have received in KiwiSaver contributions during the leave, then pay it to Inland Revenue once they return to work.
ESCT must still be deducted from employer contributions in either case, unless the contributions are treated as part of salary or wages. A worked example: an employee on unpaid leave with a usual gross salary of $1,200 a week, whose employer chooses to contribute 3.5% of that figure, produces a $42.00 weekly contribution. At a 30% ESCT rate that is $12.60 of tax, leaving a net $29.40 going into the account.
Note that this is voluntary on the employer's side. Nothing in the rules obliges an employer to contribute during unpaid leave, so if it matters to you, ask before you go.
Keeping the Government Contribution
The $260.72 government contribution is based on your own personal contributions, not on whether your employer is deducting. The government pays 25 cents for every dollar you contribute, and you need $1,042.86 of your own money in the contribution year (1 July to 30 June) to receive the full amount. You must also be 16 or over and have taxable income of $180,000 or less.
| Leave situation | Effect on the government contribution |
|---|---|
| Paid parental leave with deductions requested | Contributions continue, so the entitlement builds normally |
| Employer keeps paying you | Deductions continue as normal |
| Unpaid leave with no personal payments | No contributions, so nothing is matched — $0 for that period |
| Unpaid leave with a provider top-up you arrange | Still matched at 25 cents per dollar, up to $260.72 |
If you take unpaid leave, a voluntary top-up before 30 June is usually the cheapest way to protect the year's entitlement. Even a partial top-up earns the 25% match on whatever you put in.
The First-Home Warning
A first-home withdrawal generally requires a period of KiwiSaver membership — currently 3 years. Inland Revenue's guidance is explicit that if you are planning to use your KiwiSaver funds to buy a first home, your eligibility may be affected if you take a break from KiwiSaver while you are on paid parental leave. Membership itself continues, but eligibility rules turn on more than membership, so check the current Kāinga Ora first-home withdrawal requirements against your own contribution dates before assuming you qualify. If a house purchase is anywhere on your horizon, keep some form of contribution going.
ACC Payments Work Differently
If you are off work because of an accident rather than a birth, the mechanics are different again — see KiwiSaver and ACC Payments. The common thread is the same: when the pay stops, the deductions stop, and anything you want to keep needs an active decision.
Returning to Work
- Deductions restart automatically when you are back on the payroll at your usual rate.
- Check your first payslip to confirm the rate is right — particularly if you changed it before you went on leave.
- Check in myIR that the paid parental leave period recorded the contributions you expected.
- Check your PIR while you are there; a fund balance that grew during leave can push you into a higher prescribed investor rate if your income has changed.
Common Mistakes
- Not ticking the deduction box. Contributions from paid parental leave only happen if you ask, and the employer match goes with them.
- Assuming the employer keeps contributing on unpaid leave. They can, but they do not have to.
- Forgetting the contribution year. It ends 30 June regardless of when your leave started.
- Ignoring the first-home test. A long break in contributions can put a house purchase out of reach.
- Letting the PIR drift. Leave and a return to work can both change the rate that should apply to your fund's returns.