Posted on: Jan 08, 2013

Faitala v Terranova Homes & Care Ltd

A full court of the Employment Court has held that the employer of any employee on the minimum wage must pay the KiwiSaver employer contribution in addition to the minimum wage or, if the parties agree to what is commonly called a “total remuneration” approach, the gross wage must amount to the minimum wage plus 2%. In other words, if the employee is left with a gross wage of less than $13.50 per hour (the current minimum) because of the employer deducting its contribution, this is in breach of the Minimum Wage Act 1983.

The situation arose with caregivers at a rest home who were paid the statutory minimum wage and whose employment agreements stated that their “remuneration [was] inclusive of any KiwiSaver compulsory employer contributions”. The KiwiSaver Act 2006 nowadays allows total remuneration approaches provided the contractual terms account for the amount of compulsory contributions. The question was whether such an approach could be permitted when the outcome for the caregivers was gross pay of less than the minimum rate. The caregivers also argued that the words of their agreement did not in any case comply with the requirement to account for the amount of the contributions.

The Court noted that the right to receive payment for work at not less than the minimum rate applies irrespective of anything in any other statute or in any agreement.

This raised two questions:

  1. whether the payment of an employer’s contribution was a payment received by the employee; and
  2. whether such a payment was payment for the employee’s work for the purposes of s 6 of the Minimum Wage Act.

It found that the contribution was not a payment to the employee but rather one made to a KiwiSaver provider via Inland Revenue for the (often long-term) benefit of the employee and one that might never be realised at all or in full. Neither the KiwiSaver Act nor the Income Tax Act 2007 included contributions to superannuation funds in their definitions of wages and salary. The employer was effectively arguing for the payment of its contribution by the caregiver. And the contribution, though not payable but for the caregiver’s work, was payable because of his or her election to join KiwiSaver, not because of the performance of labour.

The Court was clear that the KiwiSaver Act did not give parties carte blanche to agree to terms and conditions that override the minimum wage legislation, a statute of “fundamental importance” in the sphere of employment law. Had Parliament intended an employer to be able to deduct its contribution from the minimum wage paid to an employee, it would have done so expressly.

The Court did find, however, that the caregivers’ agreements did not themselves infringe the KiwiSaver Act’s requirement to account for the contributions. The statutory provision did not require a statement of a numerical figure, simply a statement as to how that figure is arrived at.



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