Helen Twose 's Opinion

Personal finance and KiwiSaver columnist at the NZ Herald

Helen Twose: What are the rules for the minimum wage?

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Employer's contribution can be built into overall pay - as long as employee gets at least $13.75 an hour.

Employers cannot build KiwiSaver contributions into the total remuneration of a worker on the minimum wage - if the effect is to take the wage below the minimum rate. Photo / Janna Dixon
Employers cannot build KiwiSaver contributions into the total remuneration of a worker on the minimum wage - if the effect is to take the wage below the minimum rate. Photo / Janna Dixon

I've been following with interest the long-running TerraNova Homes case.

I run a business employing a mix of skilled and unskilled staff, some of which are on or just above the minimum wage.

What does this ruling mean for employers in relation to KiwiSaver payments?

I currently top up my employee wages with KiwiSaver but I've been told it is legal to bundle my employer contributions into their pay under "total remuneration" agreements.

The TerraNova Homes Court of Appeal decision was interesting.

It confirmed that 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.

You are correct that section 101B(4) of the KiwiSaver Act allows employer contributions to be bundled into employees' pay under "total remuneration" agreements, if the parties have entered into the agreement after December 13, 2007 and where the agreement accounts for the employer contributions in the employee's pay.

Section 6 of the Minimum Wage Act provides that employees are entitled to receive the minimum wage rate "notwithstanding anything to the contrary in any enactment, award, collective agreement, or contract of service".

The Court of Appeal in the TerraNova Homes case agreed with the Employment Court that, where there is a conflict between the effect of section 101B(4) of the KiwiSaver Act and the policy intention of section 6, the Minimum Wage Act must prevail.

So, for your workers who are on the minimum wage, employer contributions will need to continue to be paid on top of wages, to the extent (if any) that building them into total remuneration would take an employee's wages below the minimum of $13.75 an hour.

Since you say you are "currently top[ping] up my employee wages with KiwiSaver", you should continue current arrangements in relation to these employees on the minimum wage.

If you wish to try to negotiate a "total remuneration" arrangement with these employees you will need to ensure that the employee's wages are not reduced under $13.75 an hour (the minimum wage) as a result of the total remuneration arrangement being put in place.

Any arrangement will need to be negotiated in good faith and will need to "account for" the compulsory employer contributions - generally this will involve a 3 per cent pay rise.

- Emma Harding, Chapman Tripp senior associate.

I've noticed that several KiwiSaver providers are shutting some of their schemes.

It hasn't happened to me personally but out of interest what happens?

Is there a process for ensuring continuity for contributions from myself, the Government and my employer?

The KiwiSaver Act outlines a process that providers must follow if a scheme is closed and wound up. If a scheme is wound up members have the option of choosing another scheme.

If they do not make any selection Inland Revenue will allocate them to one of the default KiwiSaver schemes.

If a KiwiSaver scheme is purchased by another KiwiSaver scheme provider the new scheme provider may want to transfer members to one scheme (rather than continue to run two separate schemes).

The KiwiSaver Act also sets out the process that must be followed in this situation.

Where members are to be transferred from one KiwiSaver scheme to another KiwiSaver scheme the act allows for a scheme provider to submit an application to the Financial Markets Authority to approve the transfer on the basis that the terms and conditions of the new scheme are no less favourable.

If the Financial Markets Authority approves the transfer, then members do not have to provide their consent to the change.

But they must be told it is happening.

If the Financial Markets Authority is not able to approve the transfer, the scheme provider must gain consent from members to transfer.

As a KiwiSaver member you always have the ultimate right to choose your KiwiSaver scheme.

- Donna Nicolof, BNZ head of wealth and private bank.

My partner is self-employed and about to enrol in a KiwiSaver plan.

He is the sole employer and employee in his company.

How do his contributions affect his tax obligations?

KiwiSaver should have no impact on a person's tax obligations unless the Prescribed Investor Rate (PIR) provided to the KiwiSaver provider is too low.

In that situation the income from the KiwiSaver fund will need to be included in the person's tax return.

The Inland Revenue's website has information on how to work out your PIR (http://www.ird.govt.nz/toii/pir/workout/).

We should also note for a "one-person company" the way your partner will contribute into KiwiSaver will depend on whether he is paid a salary with PAYE deducted. If so, he will be treated like any other employee and his contribution will be deducted from the salary paid each pay period.

If not then he will be treated like a self-employed person and will need to enrol directly with a provider and pay contributions directly to the provider.

- Scott Kerse, PwC partner.

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.


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Helen Twose

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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