KiwiSaver: Contribution can come from pay

As part of a city-council restructure, staff who didn't lose their jobs are being told that the employer's (council) KiwiSaver contribution will now be taken from the employee's salary. I thought the employer contribution was compulsory. Surely it is illegal to expect a staff member to make both the personal and employer contribution from their salary?

Councils are accountable to ratepayers to spend their money wisely.

Last year minister Paula Bennett in an address to the annual Conference of Local Government NZ said "... local government needs to demonstrate that it can live within its means. Ratepayers are not willing to pay more for services while they see waste.

Year ending March 2015, local government wages and salaries increased 2.3 per cent, the highest since 2012, and significantly above CPI, the central government, and private sectors.

And the recently released LGNZ Survey identified that local government was rated poorly on trust to make good spending decisions, value for rate dollars spent, and managing finances."

It sounds like your local council is taking action to overhaul their budget, including a review of staff salaries. However, such a restructure unless very well managed can sometimes cause more harm than good as it can have a negative effect on staff morale and productivity.

I referred your question to lawyer Emma Dale, from law firm Chapman Tripp.

She provided this response: "Section 101B(4) of the KiwiSaver Act allows an employer to agree with a staff member that the staff member will make both the employee and employer contributions from the staff member's salary.

Such arrangements are known as total remuneration arrangements.

Any such arrangements must be undertaken in good faith and the agreement must account for the employer contributions in the employee's pay.

"Total remuneration arrangements can be used to treat employees doing the same job equally - ie. such arrangements mean that employees joining KiwiSaver do not get remunerated in total at a higher level than those who choose not to join KiwiSaver.

The rationale behind it is that employees can choose how their remuneration is spent.

"In order to be legal, the arrangement must meet the requirements in the KiwiSaver Act (as set out above).

The arrangement must account for employer contributions in the employee's pay and be negotiated in good faith.

This generally means that staff should have received a 3 per cent pay rise in return for providing your agreement to the new arrangement.

If this was not the case, it might be possible for you to challenge the arrangement, but it depends how much you want to raise your head above the parapet, so to speak.

I assume that your employer will be drawing up new employment agreements, or a variation to your existing employment agreement to document agreement to this new arrangement. This could be the time to discuss this matter with your employer."

As there are a number of staff in this situation, you may be able to deal with this issue as a group. It may not be easy, but better than accepting the new arrangement without question. It would also be advisable to get legal advice before signing new contracts.

- Shelley Hanna is an authorised financial adviser FSP12241. Her free disclosure statement is available on request by calling 06 870 3838 or go to www.peak.net.nz. The information in this article is general and is not personalised. Send your KiwiSaver questions to shelley.hanna@peak.net.nz