Employers can no longer build their KiwiSaver contributions into the total remuneration of a worker on the minimum wage.
The Court of Appeal has upheld last year’s decision by the Employment Court that employers paying the minimum wage have to pay their KiwiSaver contributions on top of the $13.75 an hour.
Two Lower Hutt caregivers brought a case against their rest home 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 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 rest home appealed against the decision, but the Court of Appeal agreed with the original finding.
In a statement Chapman Tripp said employers employing staff on the minimum wage and pay KiwiSaver on a total remuneration basis will need to reverse out of that arrangement or increase their minimum pay rate by three per cent – the current KiwiSaver employer contribution rate.
The three per cent margin will need to be maintained through any subsequent increase to the statutory minimum wage.
“Even if you are not affected by the Appeal Court decision, but pay your KiwiSaver contributions on a total remuneration basis, you may want to take this opportunity to review your arrangements because there has been a lot of historical change in this area which may impact on previous agreements,” the statement read.
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%.”