Most Read Contributor in New Zealand, September 2016
Employers cannot build their KiwiSaver contributions into the
total remuneration of a worker on the minimum wage, where the
effect is to take that wage below the statutory minimum –
currently $13.75 an hour.
This was confirmed by the Court of Appeal last week. We look at
the basis for the decision, and the implications of it.
The case1 depended on the relationship between
section 6 of the Minimum Wage Act (MWA) and section 101B of the
KiwiSaver Act (KSA).
Section 6 MWA provides that employees are entitled to receive
the minimum wage rate "notwithstanding anything to the
contrary in any enactment, award, collective agreement, or contract
Section 101B(4) KSA provides for a total remuneration approach
from 13 December 2007 where the parties agree and provided that it
is accounted for in the employee's pay.
The Court agreed with the Employment Court that, where there is
a conflict between the effect of section 101B(4) and the policy
intention of section 6, the Minimum Wage Act must prevail.
What do I need to do?
If you employ staff on the minimum wage and pay KiwiSaver on a
total remuneration basis, you will need to reverse out of that
arrangement or increase your minimum pay rate by 3% (the current
KiwiSaver employer contribution rate) - and you will need to
maintain this 3% margin through any subsequent increases 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.
A long and winding road
When it was originally enacted in 2006, KiwiSaver was in essence
an employee contributions scheme. Employers were only required to
facilitate staff enrolment and the collection of payments. Employer
contributions were voluntary, though tax-advantaged.
Employer contributions were made compulsory in 2007, effective
from the start of the 2008 tax year. The permissibility of total
remuneration was unclear at first, but the KiwiSaver Act was then
amended to allow for a total remuneration approach so long as this
was negotiated in good faith after 13 December 2007 (section
This option was removed in September 2008 when the then Labour
Government amended the Employment Relations Act 2000 (ERA) to make
it illegal to treat or pay otherwise comparable KiwiSaver and non
KiwiSaver employees differently.
Then, in December 2008, the newly elected National Government
repealed the 2008 ERA amendments, effectively re-legalising total
Total remuneration agreements made before 13 December 2007
As the KiwiSaver Act only permits total remuneration packages to
be agreed from 13 December 2007, a total remuneration clause in any
employee contract entered into before that date will be of no
effect unless the agreement has since been renegotiated or the
total remuneration aspect has since been re-agreed.
Total remuneration agreements made after 13 December 2007
These agreements are broadly permitted under the KiwiSaver Act.
However, for employees who first joined KiwiSaver on or after 15
December 2008 (the date when National legislated to again allow
total remuneration) they are effective only if the employee's
contractual terms and conditions "account for" the amount
of the employer's compulsory contributions.
What this means in practice has never, to our knowledge, been
argued in detail before the Courts, but the Employment Court in the
first Terranova Homes judgement found that (for a new employee
anyway) it was sufficient for a contract to state that the
employee's remuneration "is inclusive of any KiwiSaver
compulsory employer contributions" rather than providing a
An employee's own contributions must be a tax-paid
For completeness (and though there is no indication that, in
practice, Terranova Homes breached the KiwiSaver legislation in
either further respect) the judgment reproduces the remuneration
schedule from the employees' contracts, which:
shows a "before-tax" employee contribution of 2% (the
then minimum), and
shows that contribution as a deduction from gross wages.
Employee contributions (though calculated as a percentage of
before-tax pay) must be made from after-tax pay at the full rate
(currently 3%, 4% or 8%). They cannot be reduced for PAYE.
Employee contributions also cannot be deducted from the gross
pay figure which is used as the basis for calculating
employees' and employers' KiwiSaver contribution
Our thanks to Natan Karon for writing this Brief
1Terranova Homes and Care Ltd vs Vasivasi
Faitala and Dalrene Goff CA175/2013
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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