Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: Beware new-job small print

The key to disputes over contracts is whether parties acted in good faith. Photo / Getty Images
The key to disputes over contracts is whether parties acted in good faith. Photo / Getty Images

Q: When my son originally signed his employment contract as an apprentice cabinetmaker he was told the company policy was employees pay the employer's contribution of KiwiSaver. Not knowing any better he signed the contract and has been paying it since he started. Is this legal? It certainly isn't fair. He could renegotiate his contract but it would be nice to know where he stands.

A: The contract your son signed is called "total remuneration" and yes, with limited exceptions, it is legal.

Total remuneration means all the employment benefits are reflected in the salary or wages.

Where two employees are in the same role, performing the same duties, they will receive the same pay regardless of whether they are in KiwiSaver or not.

It is relatively common in bigger firms because it puts all staff on an equal financial footing rather than giving some a 3 per cent boost because they have joined KiwiSaver.

Amanda Morrall of KiwiSaver provider Simplicity says negotiating contracts is seldom easy but employers are expected to act in good faith.

"If an employee is paying into KiwiSaver, their employer is expected to make a minimum of 3 per cent contributions.

"There are a few cases where they don't have to: if the employee is under 18 or over 65; if the employer is already contributing into another equivalent scheme on their behalf; or if the employee isn't making contributions," says Morrall.

The other situation where the employer doesn't pay the KiwiSaver contribution on top of staff pay is where there has been an employment agreement to include it in the remuneration package, which the staff member may agree to because the overall pay offer was attractive - a total remuneration agreement.

"It sounds like your son may not have understood his rights at the time and agreed to the arrangement so as not to upset his would-be boss."

Fortunately, there is some recourse for him if he can't settle the matter with his boss directly. "The Department of Labour offers free mediation to help resolve workplace conflicts such as this," says Morrall.

"It's one thing if your son agreed to be paid a certain rate knowing it would exclude KiwiSaver but another if he agreed to something that he did not fully understand.

"The key thing here is 'good faith'."

A legal exception applies to the total remuneration rules if someone's pay is at, or close to, minimum wage - $15.20 an hour.

In a case that went to the Court of Appeal, care workers employed by Terranova Homes and Care Limited argued their total remuneration packages took them below minimum wage once the employer contributions were taken out, therefore breaching the Minimum Wage Act.

Terranova Homes argued, unsuccessfully, that it was still paying the full minimum wage - just that some of the benefit wouldn't be received until staff reached retirement age.

- Herald on Sunday

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Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose is a freelance business journalist who writes regularly about KiwiSaver and entrepreneurial companies. She has written for the Business Herald since 2006, covering the telecommunications sector, but has more recently focused on personal finance and profiling successful businesses.

Read more by Helen Twose

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