KiwiSaver: It pays to look at employment contract

KiwiSaver offers government incentives including a kickstart payment and tax credits.

Workers who opt out of KiwiSaver can be paid employer’s contributions if they are part of a total pay package.

I have a question - if my employer includes its contribution as part of a total remuneration package, what happens to the contribution if one opts out of KiwiSaver?

Around a quarter of employers are like your boss and include their contribution to KiwiSaver as part of the overall salary package, called "total remuneration".

The other option for employers is the pay + benefits approach to remuneration where the employer's contribution is paid on top of an employee's pay.

I asked BNZ's head of wealth and private bank, Donna Nicolof, what happens to that money if you're receiving a total remuneration package but not in KiwiSaver.

"This will depend on your employment contract and you should check with your employer to see what will happen in your situation," Nicolof says.

"However, generally, if the employer KiwiSaver contribution is part of a total remuneration package then, if the employee does not contribute to their KiwiSaver account, the employer KiwiSaver contributions would be paid to the employee as part of their salary."

The idea behind total remuneration is that it doesn't give any financial advantage to someone doing the same job as a co-worker who, for whatever financial or personal reason, has decided not to join KiwiSaver.

Although, that said, someone in KiwiSaver will benefit from government incentives like the $1000 kickstart and the yearly $521 member tax credit payment.

But rewind to 2008 and this is what then Labour Minister Trevor Mallard had to say about total remuneration when he introduced legislation to outlaw the practice: "There is no way that it is fair for one employee to be paid less each week in their take-home pay than an employee doing the same tasks, simply because they choose to be in KiwiSaver and the other employee doesn't."

At the time employers were receiving $1043 from the government to help cover the contribution costs.

All this became history when the National Government came into power later that year.

The rules as they stand today require that total remuneration contracts to deduct employer contributions, currently 3 per cent, from the employee's gross pay must have been entered into on or after December 13, 2007.

And it's not something that can be simply foisted on staff.

If an employer wants to introduce total remuneration there is a requirement to negotiate the new contract in good faith.

The recent landmark TerraNova Homes court case also means 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 $14.25 an hour.

Workers who are on the minimum wage need to have employer's KiwiSaver contributions paid on top of wages.

Any employers wishing to negotiate total remuneration arrangements with employees on pay rates on or close to the minimum wage will need to ensure that the employee's wages are not reduced to under $14.25 an hour as a result of the total remuneration arrangement being put in place.

Correction
Last week's KiwiSaver column incorrectly described the salary cap for the KiwiSaver deposit subsidy.

To be eligible for the deposit subsidy administered by Housing New Zealand you must be earning a modest wage - $80,000 before tax or under if you're planning to buy a house on your own, or a combined household income of $120,000 before tax or under if you're going in with your partner or other people.

*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, helentwose@gmail.com. Sorry, but Helen cannot answer all questions, correspond directly with readers, or give financial advice.