Employers, particularly small businesses are about to face a new financial challenge as the adult minimum wage rises by the rate of inflation from 1 April 2023.
This will be an increase of $1.50 per hour from the currently hourly rate of $21.20. The Starting-Out and Training minimum wage rates will be maintained at 80 per cent of the adult minimum wage, rising from $16.96 to $18.16.
To avoid being caught off guard, employers should start taking steps to prepare for this increase.
Assess the impact
A good starting point is to review the current pay structure of potentially impacted staff and assess how the new minimum wage may affect labour costs. This should include whether (and how many) employees are being paid the current minimum wage, or are being paid more than current minimum wage but below the new level of $22.70 per hour.
An initial review can help identify areas where there may need to be adjustments. This may be an opportunity for employers to review resourcing and capacity. For example, reducing headcount or implementing job share arrangements. Another option is to review pricing strategies and consider whether the price of goods or services may need to be adjusted to offset higher labour costs.
Consider the implications
In some industries, an increase in wage to the most junior staff may have a flow on effect on expectations of other staff anticipating a corresponding increase in pay due to their increased responsibilities or duties. Communication is key in these situations and employers should consider the financial and non-financial costs and benefits of increasing other wages to avoid any negative impact on morale or productivity.
Employers should ensure they are aware of any extra hours salaried employees are working, as extra hours worked by salaried employees may result in breaches of the minimum wage. An employee on a salary of $47,500 for a 40-hour per week job receives an hourly rate just above the new minimum wage. If they work early or stay late and end up working 42 hours per week, their resulting hourly rate of $21.75 will fall below the new minimum wage.
Any wage increase will have an impact on annual holiday and other leave entitlements. Employers need to ensure that the appropriate calculation is being used (either ordinary weekly pay or average weekly earnings for annual holidays, and relevant or average daily pay in all other cases).
KiwiSaver and ‘total rem’ packages
If an employee is on a ‘total remuneration’ package, or paid a wage rate that is inclusive of KiwiSaver, the employee still needs to receive at least the minimum wage before employer contributions to KiwiSaver are taken into account.
The increase in minimum wage is imminent and will require careful consideration and preparation by employers. Taking proactive steps now can help ensure a smooth transition and ensure the business is able to adapt to the new requirements.
Special thanks to Associate Nikita Bartlett for preparing this article. For more information on how this change may affect you, or for any other employment queries, please contact a member of our Employment Law team.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.