A landmark ruling by the Employment Court could effectively raise the minimum wage for workers enrolled in KiwiSaver.

The case could mean an extra $450 a year for those on the minimum wage, but BusinessNZ says it could lead to higher unemployment.

Lower Hutt caregivers Vasivasi Faitala and Dalrene Goff took employer Terranova Homes & Care to court, arguing it was unfair that they had to pay both their own and Terranova's KiwiSaver contributions under their employment agreement.

The women both earn the minimum wage of $13.50 an hour, made up of $13.24 plus 26 cents for Terranova's KiwiSaver contribution.

The normal approach to employer KiwiSaver contributions is to pay them on top of an employee's salary, but some employers favour a "total remuneration" approach that includes their contribution, on the grounds that it treats all staff equally.

Faitala and Goff argued it was a breach of the Minimum Wage Act, which guarantees every worker at least $13.50 per hour.

Chief Employment Court Judge Graeme Colgan agreed, and ordered Terranova to pay any compulsory contributions in addition to the workers' gross salaries.

He said in his ruling that, if all employers adopted the rest home's approach, it would undermine the key purpose of KiwiSaver for those on the minimum wage by discouraging them from joining the scheme.

Terranova executive director Terry Bell said no decision had been made on whether to appeal.

Employment lawyer Susan Hornsby-Geluk said she believed the case was the first of its kind. It drew a clear distinction between salary and KiwiSaver contributions and could set a precedent.

BusinessNZ chief executive Phil O'Reilly said he disagreed with the court decision. "It will surprise many employers, and not in a nice way" and would also mean a rise in unemployment as businesses took on fewer staff.

- © Fairfax NZ News