$20.62 an hour needed with wage rise
QI read an article that you had answered a question regarding employer Kiwisaver contributions being included in employees’ pays. I was wondering if you could please answer a question for me, as I’m in a pickle with a new employer. You stated that employers should not include their 3 per cent Kiwisaver contribution to employees on the minimum wage as it puts the employees below the minimum wage. Does this mean with the new minimum wage set at $20 per hour, an employer cannot ask the employee to include their 3 per cent contribution at $20 per hour? Can the employer simply pay $20.10 to get around this or do they need to pay $20.60? ($20 per hour + 3 per cent).
ASection 101B(4) of the Kiwisaver Act allows an employer to agree with a staff member that the staff member will make both the employee and employer contributions from the staff member’s salary. Such arrangements are known as total remuneration arrangements. Any such arrangements must be undertaken in good faith and the agreement must account for the employer contributions in the employee’s pay.
I asked Emma Dale, senior associate with law firm Chapman Tripp, for her opinion. She replied, “The minimum wage increased to $20 per hour on April 1, 2021. This means that an employer cannot operate a total remuneration arrangement (which includes the employer’s 3 per cent contribution to Kiwisaver as part of the hourly rate) that takes the employee’s hourly rate below $20 per hour. The employer cannot simply pay $20.10 to have the freedom to operate a total remuneration arrangement. In order to operate a total remuneration arrangement, the employer would need to pay at least $20.62 an hour, so that when employer contributions to Kiwisaver are deducted from the hourly rate the employee continues to receive payment at not less than the minimum wage (ie. payment at $20 per hour before tax).”
If you need to work out what your hourly rate is after Kiwisaver deductions but before PAYE and other deductions, use the useful online calculator at paye.net.nz — you can input your weekly gross and it will calculate your Kiwisaver deductions. At $20.60 per hour, the employer contributions at 3 per cent will amount to 0.62c per hour — therefore you will need to earn at least $20.62 per hour before employer Kiwisaver deductions to stay above the minimum wage.
If you did not agree to your employer’s contribution being included in your salary package (and it is not in your employment agreement), you should talk to your employer.
Is total remuneration fair? Some employers argue that this approach is fairer on those who are not in Kiwisaver, otherwise those in Kiwisaver get an extra 3 per cent employer contribution. Others say it goes against the spirit of Kiwisaver, which rewards people for saving.
Shelley Hanna is a Financial Adviser with Peak Portfolio Management Ltd which holds a licence FSP702451 issued by the Financial Markets Authority to provide financial advice services. Disclosure information at www.peak. net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your Kiwisaver questions to shelley. hanna@peak.net.nz