"Total Rem" and KiwiSaver – Gone by Lunchtime…

New law, which effectively bans the "total remuneration"* approach to KiwiSaver, was rushed through Parliament under urgency recently.  The provision was introduced on 2 September and passed by lunchtime the next day.

It creates a new ground for a personal grievance in circumstances where an employee’s
employment is "adversely affected because he or she is a member of a KiwiSaver scheme… or a complying superannuation fund…".  This means that a KiwiSaver member cannot be offered lesser terms of employment (or otherwise be disadvantaged) to other non-member employees with the same or substantially similar skills, qualifications and experience.

The implications of this are serious and complex for all employers.  Employers who ignore this legislation will face personal grievances and may be expected to pay penalties. 

Employment Relations (Breaks, Infant Feeding and Other Matters) Amendment Act 2008

Employers could be forgiven for failing to notice the significance of this Act.  The proposal to introduce statutory rest and meal breaks and breast feeding facilities in the workplace has been subject to wide consultation and has been largely uncontroversial. 

However, the controversial inclusion of provisions that effectively ban the "total remuneration" approach to KiwiSaver was introduced in a Supplementary Order Paper on 2 September 2008.  There was no opportunity for debate and consideration of the amendments through the Transport and Industrial Relations Select Committee, let alone any opportunity for public consultation.

Employers could also be forgiven for appearing indecisive when making policy decisions about how to implement KiwiSaver in their own workplaces.  Initially, the KiwiSaver Act 2007 was silent about whether a "total remuneration" approach would be permitted.  In late 2007, the Government  passed a law that allowed employers to negotiate a "total remuneration" approach with employees.  We are aware of many employers who negotiated and agreed this approach with their employees and offered ex gratia and/or incentive payments to the employees as consideration for such an agreement.

While the amendments only apply to employment agreements entered into on or after 2 September 2008, any variations made to employment agreements after this date will be affected by the new law.  A little breathing space perhaps, but employment agreements can easily be varied (for example, the addition of some new duties or an annual pay rise).

What Do Employers Need To Do?  (by Lunchtime that is…)

Employers who use a "total remuneration" approach should immediately amend template employment agreements for new starts if they provide for a "total remuneration" approach.  Payroll administrators must ensure that employer contributions for new starts are not included as part of their remuneration, but are paid in addition to their remuneration.

Employers who used a "total remuneration" approach for employees employed before 2 September 2008 should immediately take steps to transition current employees off "total remuneration" arrangements.  Employers may face personal grievances from  KiwiSaver member employees who are paid superannuation contributions as part of their remuneration when their employment agreements are varied (whether by agreement or otherwise).

Employers who have never used a "total" remuneration" approach also need to take care, particularly before implementing pay increases.  Whether an employee is a KiwiSaver member or not cannot be a factor in determining what an employee is paid. 

 *"A total remuneration" approach involves paying comparable employees the same remuneration irrespective as to whether they are KiwiSaver members or not.  See below for an illustrative example.

In this example, the new Act would consider the KiwiSaver member to be disadvantaged and the employer in breach of the law, event though the KiwiSaver member appears technically better off.

Erin Davies
Partner
t: +64 9 979 2177
m: +94 29 622 2300
e: Erin Davies

Last updated: 16 September 2008