Landmark ruling on KiwiSaver contributions

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Late last month the Employment Court made a ruling on the ‘total remuneration’ approach to employer KiwiSaver contributions that may have significant repercussions.

The plaintiffs in the case were two caregivers who received the statutory minimum wage of $13.50 an hour and who were employed by the defendant at a rest home. They brought a case against their employer, arguing that they could not deduct the compulsory employer contribution to KiwiSaver from their minimum wage rate since it breached the Minimum Wage Act 1983 (MWA). The defendant, the employer, countered that their ‘total remuneration approach’ was permitted under the KiwiSaver Act 2006 (KSA).

“The Employment Court held that the deferred payment to the employee (via a superannuation scheme) of a compulsory employer contribution to superannuation does not constitute payment by the employer for work performed by the employee,” Karen Radich, employment law barrister at Clifton Chambers, explained.

The court held that an employer must pay the 2% employer contribution to KiwiSaver in addition to the wages of those on the minimum wage, or the employer and employee may agree to set the employee’s gross wages at the minimum wage plus 2%. “The employer’s compulsory contributions must be paid in addition to the plaintiffs’ gross salary or wages which are set at the minimum rate,” Judge Inglis wrote on behalf of the court.

In the course of her judgment, Judge Inglis argued that allowing employers to deduct their compulsory contribution from an employee’s minimum wage would undermine two key purposes of the KiwiSaver scheme. Workers would be discouraged from joining, knowing that their wages would be reduced, and the scheme would be unaffordable for workers on the minimum wage.

Instead, Judge Inglis argued that section 101B of the KSA, which allows parties to an employment agreement to incorporate the employer’s identified contribution into the employee’s agreed rate of remuneration, does not purport to deal with an employer contribution for an employee on the minimum wage.

Radich remarked that the case could be an important one. “Assuming that most of those 200,000 people (on the minimum wage in New Zealand) will have joined KiwiSaver, or at least a large proportion of them, this case could be very significant,” she said. It seems unlikely that the employer in this case is the only one to have adopted the ‘total remuneration approach’ with an employee on the minimum wage act.

Radich agreed with the court’s decision. “As the Court outlined in several parts of its decision, the purpose of the Minimum Wage Act is to prevent the exploitation of vulnerable workers and provide a ‘safety net’ for people with diminished bargaining power – so that they receive a living wage, to meet the basic day-to-day living expenses of the employee and their family,” she said.

However, she also noted that the potentially significant financial implications of this case for employers could well mean that it went to appeal.

Key takeaways:
 

  • Section 101B of the KSA allows parties to an employment agreement to incorporate the employer’s contribution into an agreed rate of remuneration as a component of the employee’s regular pay.
     
  • In such a case, the employer’s compulsory contribution must be clearly identified.
     
  • However, this section of the KSA is to be read subject to section 6 of the MWA.  “That means that, for an employee on the minimum wage, an employer is obliged to pay the 2% contribution in addition to the minimum wage or (if the parties agree) the gross wage must amount to the minimum wage plus 2%.”

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