Salaries & wages

Navigating New Zealand’s wage landscape: Minimum wage, median wage, and living wage explained

by Tanya Gray | Mar 12, 2024 | Compliance, Salaries & wages

Contents

Introduction
Minimum wage
Median wage
Living wage
Conclusion

Introduction

Understanding the various wage metrics is crucial for both employers and employees in New Zealand. The country has a well-defined wage structure, consisting of minimum wage, median wage, and the living wage. In this post, we’ll delve into the key differences between these three measures, shedding light on their significance in the Kiwi job market.

1. Minimum wage

The minimum wage is the lowest legal remuneration that employers can pay their employees. Effective April 1, 2024, businesses should prepare for an upcoming hike in minimum wage rates. The adjusted rates are as follows:

The adult starting wage will increase from $22.70 to $23.15 per hour.

The starting-out and training minimum wage will rise from $18.16 to $18.52 per hour.

This increase reflects the government’s commitment to ensuring that workers receive a fair and equitable wage, keeping pace with the rising cost of living.

2. Median wage

The median wage, currently set at $31.61 an hour as of the June 2023 quarter, plays a pivotal role in the immigration system. As of February 28, 2024, the new median wage rate has been adopted into various immigration categories:

Wage thresholds for the Skilled Migrant Category, the Green List Straight to Residence and Work to Residence visas, and the Parent Category residence class visa will increase in line with the median wage ($31.61 an hour).

The wage threshold for the Transport Sector Work to Residence Visa will also increase in line with the new median wage (excluding bus drivers).

However, it’s important to note that this increase does not apply to the Accredited Employer Work Visa (AEWV), which remains at the current rate of NZD$29.66 an hour. The pause also applies to AEWV-linked work visas set at or indexed to the median wage rate from February 2023, including Partner of a Worker Work Visa, variation of conditions for AEWVs, legacy Essential Skills work visas, interim visas granted under the Skilled Migrant Category, and Partner of a Worker work visas.

This pause allows time for decisions to be taken on alternatives to the median wage threshold, ensuring that it attracts the workers New Zealand needs and fills genuine skill shortages.

3. Living wage

The living wage goes beyond legal minimums and median wages. It is an income level deemed sufficient to cover basic necessities, allowing individuals and families to live with dignity. While not legally mandated, the living wage is advocated for by various organizations and community initiatives as a guideline for fair compensation.

As of September 1, 2023, the Living Wage hourly rate stands at $26.00. This rate is carefully calculated every five years through a comprehensive review of prices, expenses, and calculation methods. The Living Wage rate aims to provide workers and their families with the basic necessities of life, enabling them to live with dignity and participate as active citizens in society. The 2023/24 rate represents a $2.35 or 9.9% increase from the previous year.

Conclusion

In conclusion, navigating the wage landscape in New Zealand involves understanding the minimum wage, median wage, and living wage. Employers must not only comply with legal minimums but also consider median and living wages for fair compensation and a positive work environment. The recent adjustments in median wage rates have implications for immigration policies, highlighting the interconnected nature of wages and broader societal considerations.

For expert advice on optimizing your wage structure and ensuring compliance, contact ConsultingHQ today. Our team is dedicated to providing tailored solutions that align with your business needs, promoting fair compensation practices and legal adherence.

Contact us to find out how we can help your business.

How to prepare for the minimum wage increase on 1 April 2023

by Tanya Gray | Mar 30, 2023 | Salaries & wages

Contents

How to prepare for the minimum wage increase on 1 April 2023
Checklist to ensure you’re ready for the minimum wage increase

How to prepare for the minimum wage increase on 1 April 2023

The Government announced in February that there will be an adult minimum wage increase (not to be confused with the median wage) of $1.50 per hour to $22.70 per hour on 1 April 2023. This is a 7.2% increase and is in line with the Consumer Price Index Inflation rate as at end of December 2022.

The Starting-Out and Training minimum wage rates will remain at 80% of the adult minimum wage, which means they’ll both go up to $18.16 per hour.

NB: All rates are before tax and any lawful deductions such as PAYE tax, student loan repayments, and child support.

The minimum wage increase applies to all businesses and employers in New Zealand. As a business owner, you need to ensure that you are ready for the change. If you haven’t yet talked to your accountant, payroll provider or your finance/HR advisors, now is the time. It’s also an opportunity to check your employment records, processes, and systems.

Note that the minimum wage does not apply in some situations, including:

Employees under 16 years of age.
Where a Labour Inspector has issued a minimum wage exemption permit to an employee who has a disability that limits them carrying out the requirements of their work.

Checklist to ensure you’re ready for the minimum wage increase:

If you have any employees currently on the minimum wage, communicate verbally with them (if you can) to tell them about the increase they will be getting and when.
Follow up in writing by letter or email with a variation of employment that confirms the new wage rate.
Check your payroll system and processes (which may be your payroll provider, accountant, lawyer, and HR or finance people) to make sure they are ready to implement the changes.
If your system is manual or computer based, check and confirm that the settings will be adjusted in time for the minimum wage increase.
If any of your employees are on Starting-Out and Training minimum wage rates, now would be a good time to review their records and note when they will be eligible to move onto the adult rate.
If any employment agreements (EAs) are not current or you did not give one to your employees, now is an ideal time to discuss this in good faith with your employees. Update the EA with any terms and conditions that were agreed to by both parties before the EAs were last reviewed.
Internal and external pay relativity: in these times of skills shortages, you should consider the potential impacts on the business due to internal wage relativity. For example, look at how your employees are paid compared to each other – including doing a fairness check. Also undertake external benchmarking. For example, how do your pay rates compare to others in your industry or sector? Employees higher-up may possibly want to negotiate a pay increase to maintain the relative difference. Be mindful that you don’t want to lose good people who feel they have been left behind pay-wise, by what amounts to relatively small sums.
Budgeting: you should add any expected increased costs to your short and medium-term budget forecasts, to help you plan for and manage the effect of higher wage and holiday pay liabilities. If your business is expecting significantly increased costs, you may wish to review your pricing, taking into consideration any possible reaction by customers.
The Government will review the minimum wage rate again later this year.

Get in Touch

Even something as straightforward as a minimum wage increase can involve complexities so if you have questions or feel you could do with some HR assistance, please get in touch.

Contact us to find out how we can help your business.

Fair Pay Agreements Act 2022 – a big change coming to NZ employers

by Tanya Gray | Nov 8, 2022 | Legal Compliance, Salaries & wages

Fair Pay Agreements Act 2022 – a big change coming to NZ employers

Contents

What is a fair pay agreement?
Who will this cover?
What are the various viewpoints about FPAs?
If a business is covered by an FPA, what will it involve?
What should an employer do now?

The Government passed the Fair Pay Agreements Act on 26 October which means that applications to initiate bargaining can be made from 1 December 2022. It’s estimated that the process from bargaining to a finalised Fair Pay Agreement (an FPA) could take around a year.

What is a fair pay agreement?

A fair pay agreement or FPA is an agreement that applies to all workers across entire industries or occupations. It will provide minimum terms and conditions of employment for an industry as a whole, regardless of specific employers.

There are various matters that a fair pay agreement must cover. These are:

when the agreement will come into force and when it expires;
the coverage of the agreement;
normal hours of work;
details of wages, including minimum base wage rates, overtime, and penalty rates;
arrangements for training and development;
leave entitlements;
governance arrangements; and
an agreed process for varying the terms of the agreement

Parties will also be required to discuss (but not required to agree on) other matters including:

the objectives of the proposed agreement;
health and safety requirements;
arrangements relating to flexible working; and
arrangements relating to any redundancy.

The fair pay agreement must apply for a minimum of three years and a maximum of five years.

Who will this cover?

The FPA Act enables any eligible union to initiate bargaining for a FPA if it meets either a representation test or a public interest test.

The representation test is met if at least 1,000 employees or 10% of the employees who would be within the coverage of the proposed FPA support the application to initiate bargaining for the proposed FPA.

The public interest test is met if employees who would be within the coverage of the proposed FPA receive low pay for their work and meet one or more of the following criteria:

they have little bargaining power in their employment;
they have a lack of pay progression in their employment (for example, pay rates only increase to comply with minimum wage requirements);
they are not adequately paid, taking into account factors such as working long or unsocial hours (for example, working weekends, night shifts, or split shifts), and contractual uncertainty, including performing short-term seasonal work or working on an intermittent or irregular basis.

All employers of covered employees will be included in the FPA. For negotiation, the employers will be represented by an organisation; they will not be choosing one employer in an industry to negotiate on behalf of all employers in that industry.

An FPA may cover, and provide different entitlements for, different classes of employees, such as those who would be covered by a starting-out wage or a training wage. The agreement can also have different classes depending on the type of role, or the location of the employee.

In the future, if the legislation remains in place, a FPA could cover anyone who is an employee, and there is a possibility that the majority of New Zealand workers could eventually be covered by one. However, while there is no prohibition on any particular occupations creating a FPA, the legislation is geared toward low paid industries.

What are the various viewpoints about FPAs?

The government sees the system as a necessary correction to 30 years without sector-based bargaining, which it believes has had a negative impact on productivity and helped to increase inequality across the country by way of a shrinking share of the country’s earnings trickling down to workers. This legislation completes a key Labour Government 2020 election commitment.

Union officials have said it will be especially significant for low waged workers but also good for the industries that employ them as a whole, as it will make them more attractive workplaces for recruiting staff and retaining them.

Some employee groups and business associations have roundly criticised FPAs and both National and Act have made it their priority to repeal the legislation if they make it into government in the 2023 elections.

If a business is covered by an FPA, what will it involve?

An employer must provide employees with information about the FPA including how to contact and join the union if asked by the union
Provide contact details of the covered employees to the union unless employees’ object
The employer bargaining side must use its best endeavours to represent all employers and to act in good faith. Best endeavours are not defined but will almost certainly include a requirement to inform all affected employers, especially Māori employers

What should an employer do now?

Employers should start thinking about whether there is an association who may be able to represent them if FPA bargaining is initiated in respect of their employees, and which other employers may need to be involved. Employer groups who lack representation do face the very real possibility of terms being imposed on them by the Employment Relations Authority within a relatively short space of time, even though it is expected that it will take about a year for a FPA to be in place after bargaining commences.

The full details of the Fair Pay Agreements Act 2022 can be found on the New Zealand Legislation website and further information on the Employment New Zealand website.

If you have any questions about fair pay agreements, or employment agreements generally, please contact a member of the ConsultingHQ team.