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KiwiSaver Employer Contributions- Can this be deducted from minimum wage?

In an earlier blog we discussed the increase in minimum contributions from 2% to 3%.

The Court of Appeal has now had to consider the interplay between the Minimum Wage Act and the KiwiSaver Act. The Court of Appeal has decided that compulsory employer KiwiSaver contributions cannot be deducted from wages paid to employees when those employees are only paid minimum wage.

The case involved two caregivers employed by Terranova Homes and Care Limited. Each employee was paid a gross wage of $13.50 an hour. The employment agreements stated that the employees'pay was inclusive of the employer KiwiSaver contribution. Accordingly, the employees were only paid $12.98 an hour after the employer and employee KiwiSaver contributions were deducted.

The employees issued proceedings against Terranova,and the Employment Court upheld the employees'claim.

The Employment Court held that the purpose of the Minimum Wage Act 1983 was to ensure that workers received the base minimum wage to enable them to meet living expenses. The Court held that deducting the compulsory KiwiSaver contributions from this was contrary to the Act.

Terranova appealed the decision. The Court of Appeal held the statutory entitlement to be paid a minimum hourly rate is not affected by the KiwiSaver Act. Therefore, the employees were entitled to be paid minimum wage for each and every hour worked and the employer's KiwiSaver contribution had to be paid on top of that.

So, what does this all mean?

Put simply, if you pay your employees minimum wage, the Employer's KiwiSaver contribution must be paid on top.

The bigger picture

Recently, several cases have been brought- and won- which reaffirm employees' minimum employment entitlements such as being paid the minimum wage. While most employers do comply with minimum statutory requirements, some are not, and are facing large bills for pay arrears as a result. Employers ignore minimum wage entitlements at their own peril.

- Shima Grice, Rebecca Catley

Written by Shima Grice, Rebecca Catley at 09:00

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