Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: Deductions can cause confusion

Employer contributions can be taken from pay packet if parties agree to the arrangement in good faith.

We were confused to see that the employer had made a deduction from my wife's pay equal to the KiwiSaver contribution, says reader. Photo / Thinkstock
We were confused to see that the employer had made a deduction from my wife's pay equal to the KiwiSaver contribution, says reader. Photo / Thinkstock

My wife works in a rest home and like many of her low paid fellow workers has an individual employment contract.

On her first pay we were confused to see that the employer had made a deduction from her pay equal to the KiwiSaver contribution, which was also deducted.

It seems that she is paying both the employer and employee contribution.

When she asked about this she was told that this is the norm for this industry.

Despite the contract being full of warnings about keeping things secret, my wife has found that this is happening to many other staff and they do not understand what the deductions mean.

This has never been negotiated with them.

In the employment contract there is a section about KiwiSaver and it states that the employer will follow all legal requirements and make employer contribution so we thought this was fine but the bottom line of the last page states that the wage payment offered is for total remuneration and the employer uses this to recover the employer contribution to KiwiSaver.

As the employer contribution has recently increased along with the employee contribution the total take home pay has reduced significantly.

I rang the Department of Labour who said that the IRD was responsible for KiwiSaver but the IRD said I should go to a lawyer.

Can you clarify for me? Is this situation legal? If not what should we do?

It is legal to have employee and employer contributions in total remuneration if the parties have agreed to the arrangements in good faith.

The reader says that the deduction has "never been negotiated" with the rest home workers, such as his wife, which would seem not to be in good faith, but all the circumstances of the arrangement and discussions at the time this clause was inserted into contracts or at the time the workers were hired, whichever was later, would need to be considered before making a judgment on this question.

The contract also has to "account for" the employer contributions for such an agreement to be legal.

What this has generally been taken to mean is that the person's total remuneration is increased by the amount of the employer contribution.

In this case, the reader's wife's gross pay when she agreed to the arrangement (whether that was when she was hired or when the clause was inserted into her contract) should have been 2 per cent higher than it would have been otherwise, assuming the employer contribution was 2 per cent when the wife agreed to the arrangement.

The arrangement (to deduct employer contributions from the employee's gross pay) must also have been entered into on or after December 13, 2007.

Otherwise, employer contributions must be paid on top of, rather than deducted from, gross pay.

The reader is correct in that the employer and employee minimum contribution rates to KiwiSaver increased to 3 per cent each on and from April 1, 2013.

This increase would have resulted in a reduction in the reader's wife's take home pay.

Despite the above, a recent case has held that for anyone on the minimum wage, employer contributions to KiwiSaver must be paid on top of the minimum wage.

If this applies to the reader's wife (and the reader says that his wife and her fellow workers are low paid), then findings of the case may provide a basis for the wife to challenge the deduction of employer contributions from total remuneration.

If the wife has belonged to one or more KiwiSaver schemes for at least 12 months she could consider taking a contributions holiday by applying to Inland Revenue.

This way she can cease her employee contributions to KiwiSaver, which would result in the cessation of the employer contributions too.

If so minded, she could consider making voluntary contributions to her KiwiSaver scheme in order to qualify for the member tax credit.

I would recommend that the wife seeks financial advice before doing this, though, as it might not be best for her given her individual personal circumstances.

•Emma Harding, Chapman Tripp senior solicitor.

I'm not yet in KiwiSaver so tossing up the pros and cons.

One of the issues for me is that my job could potentially see me going overseas within the next five to 10 years.

With a British-born wife we could easily end up retiring to the UK.

What are the implications for my KiwiSaver in this situation?

The pros of joining KiwiSaver now are the benefits of saving for those extra five to 10 years while you decide your long-term plans and location.

While you are working in New Zealand you still have the ability to take up the benefits of KiwiSaver, including the $1000 kick-start, contributions from your employer and the government annual contributions, also known as member tax credits.

A person emigrating from New Zealand can withdraw their KiwiSaver funds in cash, except for the member tax credits, one year after their permanent emigration.

When the transtasman portability of savings comes into effect, proposed for July 1, 2013, then KiwiSaver members will be able to transfer their savings into complying Australian superannuation funds that accept these transfers.

That means if you emigrate to Australia you will no longer be able to withdraw in cash, instead you take your KiwiSaver funds with you, including the member tax credits and $1000 kick start.

There is no such agreement currently proposed or in place for the UK, so members can take their funds in cash (except for member tax credits) once they meet the eligibility criteria for permanent emigration.

•David Boyle, ANZ Wealth general manager funds.

•Disclaimer: Information provided is stated accurately to the best of the respondent's knowledge at the time of publication. It is general in nature and should not be construed, or relied on, as a recommendation to invest in a particular financial product or class of financial product. Readers should seek independent financial advice specific to their situation before making an investment decision.

To have your KiwiSaver questions answered by the NZ Herald's panel of industry players email Helen Twose,

- NZ Herald

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