KiwiSaver: Total Remuneration and Minimum Wage
Employers who have staff who are on or close to the minimum wage should take note of a recent Employment Court decision that may impact on how KiwiSaver contributions are to be paid.
In 2008, Parliament, removed legislative prohibitions on total remuneration schemes negotiated in good faith after 13 December 2007. Total remuneration schemes are where an employer sets a fixed amount to be paid to the employee as remuneration, and then takes the cost of paying any employer KiwiSaver contributions out of the employee’s pay.
In the recent Employment Court decision of Faitala and Goff v Terranova Homes & Care Limited a total remuneration arrangement involving two employees who were paid minimum wage was deemed unlawful. In this case, the employer paid the rate of $13.50 per hour which included a portion of the company’s compulsory employer contribution of 2%.
The Court found that the company was in breach of section 6 of the Minimum Wage Act 1983 as the total remuneration arrangement meant that the two employees were actually being paid less than the required rate of minimum wage. The Court ruled that the employer’s compulsory contributions must be paid in addition to the employees’ hourly rate of pay.
The decision in Terranova confirms that an employee must not be paid less than the minimum wage, and where a total remuneration scheme is agreed between the employer and employee, the total amount cannot be less than the minimum wage plus the value of the compulsory KiwiSaver employer contribution (currently 2%).
The Courts decision may effectively raise the total wages payable to employees who are part of the KiwiSaver scheme and are on minimum wage. This will no doubt place more cost on employers affected and will only increase when the compulsory employer contribution rises to 3% from 1 April 2013.
Please contact our Business Central Consultants or Lawyers should you have any queries