Potential curly issues for employers – minimum wage increases

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From 1 April 2021, the adult minimum wage will be increasing from $18.90 to $20 per hour.

At the same time, the starting-out and training minimum wages (which are restricted to very limited groups of employees) will increase from $15.12 to $16 per hour.

The key for employers will be to ensure all employees are receiving at least the minimum wage for all hours worked. This applies equally to employees who are paid a wage, or are on a salary.

Although an increase in the minimum wage may seem straight forward to implement, there are a number of potential curly issues that employers will need to be mindful of. In particular:

  • When an employee’s remuneration increases in line with the minimum wage, this will naturally have an impact on annual holiday and other leave payments. Employers should therefore check that the appropriate method of calculating payment for each type of leave (either ordinary weekly pay or average weekly earnings for annual holidays, and relevant or average daily pay in all other cases) is being used after the change takes effect.
  • In the case of employees who are paid a salary, employers will need to consider whether they are being paid at least the minimum wage for all hours worked. As it will often be the case that salaried employees work more hours than is strictly prescribed in their employment agreement, this is an area where employers can easily run into trouble.
  • 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.
  • Where an employee has agreed to receive a reduced wage or salary rate (a common scenario in light of COVID-19) this will not excuse the employer from its obligation to pay at least the minimum wage. For example, if an employee agreed to take 80% of normal pay, and this resulted in them receiving $19 per hour, this will need to be increased to $20 per hour from 1 April onwards.

There are stiff penalties for employers who err when it comes to the minimum wage and other statutory entitlements. It will therefore be important that employers do not let 1 April pass without at least turning their mind to any implications this latest minimum wage increase may have for them and their workforce. 

Please contact our employment team if you require further assistance.

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.

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