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Are you breaking the law as a KiwiSaver Employer?

As an Employer - you have a legal obligation to make KiwiSaver available to eligible employees.

You also have a legal obligation to make Employer Contributions to KiwiSaver.  These employer contributions started at 1% tax free, are currently 2% (with tax deducted) and increase to 3% (with tax deducted) from 1st April 2013.

When KiwiSaver was launched, it was clear that these employer contributions were to be 'on top of' the employees remuneration.  However, this was amended under section 101B of the KiwiSaver Act 2006.  This provided the ability for employers and employees to negotiate (after 13th December 2007) to agree that the employer contributions could make up part of the remuneration package. It is unclear how many employers have taken up this option.

However, a recent Employment Court Case Faitala v TerraNova Minimum KiwiSaver Contributions 27th November 2012 made it clear that for employees who are on the Minimum Wage, that KiwiSaver Employer contributions must be made on top of the minimum wage payments.

The Full Court stated that the Minimum Wage Act 1983 was 'a minimum code',  'is designed to prevent the exploitation of workers', 'it remains the oldest piece of employment legislation still in force' that the purpose of the MWA is to ensure that workers receive a base wage for their work to enable them to meet their daily living expenses for themselves and their family.'

In handing down the decision, the Court noted that this interpretation is also consistent with New Zealand's international obligations and a number of conventions that New Zealand has ratified.

The finding was 'the employer's compulsory contributions must be paid in addition to the plaintiff's (employees) gross salary or wages which are set at the minimum rate.'

In our opinion, it is also important to note - that although Section 101B of the KiwiSaver Act exists, the Court found that the intent of the KiwiSaver legislation was for the contributions to be made in addition to remuneration .  Another important consideration is the wording of Section 101B - which clearly says: 'parties to an employment relationship are free to agree.'

Of course being 'free to agree' raises issues about where the power lies in an employment negotiation, but it is important as employers and employees to be aware of this significant KiwiSaver case.

 

 

For more blog articles on KiwiSaver, check out these posts:

Women lag in retirement savings

KiwiSaver – How do you measure performance? – Fund Size

I’ve heard that things are changing with KiwiSaver on 1st April 2013. What are the changes?

I am under 18 and enrolled in KiwiSaver. Do I have to make employee contributions?
If you have any thoughts or opinions that you would like to share, visit us at our Facebook or Linked In pages, and comment.

By Carey Church



 

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