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 their own and Terranova's KiwiSaver contributions under their employment agreement.
The women earn the minimum wage of $13.50 an hour, made up of $13.24 plus 26c 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.
Such an approach is legal, but Ms Faitala and Ms 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.
Under the rest home's argument, the phrase "compulsory employer contribution" became a "complete misnomer", he said.
"In this sense the defendant is not paying to the plaintiffs the compulsory employer contribution, rather the plaintiffs are paying twice - their own contribution and, in addition, their employer's contribution."
Terranova executive director Terry Bell said no decision had been made on whether to appeal.
Fifteen to 20 per cent of its staff were on the minimum wage. He admitted the company paid its staff as little as it could, but this was not done out of "meanness" but because it was almost entirely Government-funded and struggled to survive.
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.
With employer contributions to rise from 2 per cent to 3 per cent next year, the decision could have a significant impact on small businesses, she said.
BusinessNZ chief executive Phil O'Reilly said he disagreed with the court decision, as employers had been told since KiwiSaver's inception that contributions were part of wages. It would also mean a rise in unemployment as businesses took on fewer staff, he said.
Labour Party spokeswoman Darien Fenton said she was not surprised to hear that employers were trying to pass on KiwiSaver costs after the recent rise in the minimum wage.
"We have a minimum wage for a purpose and it's really good the courts came back with this."
Service and Food Workers' solicitor Timothy Oldfield, who represented the women, said the pair were not keen to comment on the case because they still worked for Terranova.
A spokesman for Acting Labour Minister Chris Finlayson said advice had been sought on the judgment, but it was inappropriate to comment while the prospect of an appeal was before the courts.
Kiwisaver Employees choose to contribute either 2, 4 or 8 per cent of their wages.
Employers must contribute 2 per cent.
The Government will also pay an annual tax credit of up to $521.43.
The money cannot be withdrawn until the age of 65, unless for a specific purpose such as a first-home purchase.
- © Fairfax NZ News
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