Whether you like it or not, New Zealand/Aotearoa’s minimum wage is set to increase from the first of April 2023. Accordingly, we thought we would remind everyone of some of the minimum wage basics.
Minimum wage is the figure that the government decides is the least an employee can be paid per hour. Currently, the adult minimum wage is $21.20 per hour (for people starting out and in training this is $16.96 per hour). After the first of April, this figure will rise to $22.70 (and to $18.16 per hour for those starting out and in training).
Currently, around 222,900 New Zealand workers are paid between the current and new minimum wage rates, so this change impacts a large number of employers and employees.
Something to note is that the increase applies to both workers paid by the hour and to salaried workers.
It is a common view that the idea behind paying a salary is to even out peaks and troughs and paying employees more than minimum wage some of the time makes up for the extra hours they work at other times. However, the law is clear that employees must be paid minimum wage for all the hours they work and the ability to “average” is actually quite restricted.
For example, a salaried worker sometimes works 40 hours a week, but other times they work 70 hours. They are paid fortnightly and annually they work an average of 100 hours per fortnight.
Many employers would assume that paying this person a salary of $59,020 (the equivalent of 100 hours/fortnight at minimum wage) meets minimum wage obligations in the above case.
However, the maximum period employers can average an employee’s hours is fortnightly, unless employees are paid weekly, in which case the employer must average weekly.
This means that, in the above example, if the employee worked 70 hours for two weeks in a row, their salary would not equate to minimum wage and they would be entitled to a “top-up” payment.
Clearly then, whether an employee’s hours are averaged annually or weekly makes a big difference to the amount an employee is entitled to receive. For this reason (and others) many businesses choose to pay their staff fortnightly.
For those wondering about KiwiSaver, while the law enables employers and employees to agree that the Employer’s KiwiSaver contribution will be included in an hourly rate/salary rather than paid on top of it, this does not enable employers to pay less than the minimum wage. Employers’ KiwiSaver contributions must be paid on top of (in addition to) the minimum wage.
For both employers and employees, it is also important to understand that certain clauses in employment agreements (such as restraint of trade clauses or availability clauses) require some form of payment to be effective. Often the agreement will say the salary or hourly rate includes this payment, but that is unlikely to work if the salary or wage is the minimum wage.
If employers want to stay on the right side of the law and have the ability to prove they are meeting their minimum wage obligations, they also need to keep a record of the number of hours each of their employees have worked, and how much they were paid for it (called a “wage and time record”). Employers can face fines of up to $20,000 for failing to do this, so if your business is not doing this, get recording!
If you have anyone on your team earning less than the new hourly rates set out above or anyone employed to work 40hrs/week and earning a salary of less than $47,216, you probably need to give them a pay-rise. Even then, you need to be keeping a careful eye on hours; if they work additional hours you may need to pay a “top-up” for those hours.
If you’re ever unsure about how you should be paying your employees, or what your obligations are under the law, give our friendly team a call on (04) 970 3600 or email firstname.lastname@example.org.
– Frankie Flaws (Solicitor)