KiwiSaver and Compulsory Employer Contribution (CEC)

What is KiwiSaver?

KiwiSaver is a voluntary work-based savings initiative to help New Zealanders with their long-term saving for retirement.  It is open to all New Zealanders aged under 65.  The Inland Revenue Department’s (IRD) website (www.KiwiSaver.govt.nz) provides further information on the benefits of joining KiwiSaver.

How to join KiwiSaver

People can join KiwiSaver by “opting in” or through automatic enrolment when an eligible employee starts a new job. An employee who is automatically enrolled can opt out of KiwiSaver. The “opt out” period begins on the 13th day after the date on which the person started the new employment and ends on the close of the 55th day after the date the person started the new employment. This allows a total of six weeks for a new employee to decide if they want to remain in the scheme.

Existing employees, who are eligible, can choose to join the scheme.  These employees can either join directly with a scheme provider or, if they’re over 18, through their employer by asking their employer for a KiwiSaver employee information pack and filling in the KiwiSaver deduction form.  Opting out of the scheme is not possible for those who choose to join the scheme.

For further information please refer to the IRD website (www.KiwiSaver.govt.nz) .

How does KiwiSaver work?

For Employees

Employees make regular contributions of 2%, 4% or 8% of their gross salary or wages. If an employee does not choose the rate, the contribution rate is automatically set at 2%. These contributions are deducted from the employee’s pay and sent to Inland Revenue by the employer. The employee’s contributions to the KiwiSaver scheme begin with the first pay after the employee starts their new job. For further details please refer to the IRD website (www.KiwiSaver.govt.nz).

For Employers

Employers are required to make compulsory employer contributions in respect of any employee who is over 18 and making contributions from their salary or wages to the KiwiSaver scheme or complying superannuation fund. Compulsory employer contributions will increase to 2% from 1 April 2009.

If the employer already makes employer contributions to another superannuation scheme, this may count towards the compulsory employer contribution. If this is so, the employee may not be entitled to another employer contribution to the KiwiSaver scheme. Certain criteria apply.

The KiwiSaver Act 2006 requires that the employer’s contribution needs to be in addition to an employee’s gross salary or wages unless the parties agree otherwise. An employee’s take home pay cannot be reduced because of the fact that an employer must make a compulsory employer contribution when the employee joins KiwiSaver. Any variation to this has to be negotiated between the employer and employee in good faith.

For further details on employer contributions please refer to the Inland Revenue Department’s website (http://www.ird.govt.nz/kiwisaver/employers).

Specific information on the updates from 1 April 2009 are also available from Inland Revenue Department’s website (http://www.ird.govt.nz/news-updates/like-to-know-april-2009-kiwisaver-changes.html).

How does this affect current contracts and agreements?

Compulsory employer contributions are to be made in addition to the employee’s current gross salary or wages.  This means that if the employee and employer have agreed to a total remuneration package, the compulsory employer contributions must be paid on top of that package.  An employee’s take home pay cannot be reduced because of the fact that an employer must make a compulsory employer contribution when the employee joins KiwiSaver.

However, over time, employer contributions may effectively form part of the wage negotiation process, which will be for employers and employees to agree mutually.  The Employment Relations Act 2000 requires all employers to act in good faith in their negotiation process and employment agreements.

Clauses in employment agreements agreed before 13 December 2007 that appear to allow compulsory employer contributions to be made other than in addition to the employee’s gross salary or wages are not enforceable.

The duty of good faith under the Employment Relations Act 2000 applies when an employer and a union, or an employer and an employee, bargain for a new employment agreement, or a variation to an existing employment agreement.  This includes when bargaining for terms and conditions relating to KiwiSaver compulsory employer contributions.

The requirements of good faith include the following requirements:

• The parties to an employment relationship must deal with each other in good faith
• The parties to an employment relationship must not, whether directly or indirectly, do anything to mislead or deceive each other, or do anything that is likely to mislead or deceive each other
• The parties to an employment relationship are required to be active and constructive in establishing and maintaining a productive employment relationship in which the parties are, among other things, responsive and communicative
• The duty of good faith applies to all types of bargaining regarding bargaining for a collective agreement or for a variation of a collective agreement, and bargaining for an individual employment agreement or for a variation of an individual employment agreement.

Take it or leave it negotiations are not considered to be good faith bargaining.  The Employment Relations Act 2000 sets out some specific, minimum requirements for good faith bargaining, covering both individual and collective bargaining.

An employment agreement, collective or individual, can not be varied unless the bargaining processes under the Employment Relations Act are followed. A unilateral variation of an employment agreement, without bargaining, is unlawful.

The requirements when bargaining for an individual employment agreement or for a variation of an individual employment agreement are that the employer must do at least the following things:

• provide to the employee a copy of the intended agreement, or the part of the intended agreement, under discussion; and
• advise the employee that he or she is entitled to seek independent advice about the intended agreement or any part of the intended agreement; and
• give the employee a reasonable opportunity to seek that advice; and
• consider any issues that the employee raises and respond to them.

For further details on the specific, minimum requirements of good faith bargaining for different collective and individual bargaining situations, please refer to the Department of Labour’s website (www.ers.dol.govt.nz).

Recent Changes to KiwiSaver

From 15 December 2008 the requirement for compulsory employer contributions on top of gross salary or wages cannot be overridden at the beginning of the employment relationship if:

• an employee when becoming a member becomes entitled to compulsory employer contributions, or an existing member starts a new job, and
• the terms and conditions do not account for the amount of compulsory employer contributions that the employer is required to pay.

Do current contracts and agreements become void?

Current contracts and agreements do not become void.  However, clauses in employment agreements agreed before 13 December 2007 that appear to allow compulsory employer contributions to be made other than in addition to the employee’s gross salary or wages will be unenforceable and have no effect.

The employer must make the compulsory employer contribution in addition to the employee’s gross salary or wages unless parties negotiate in good faith and agree otherwise after 13 December 2007.

An employment agreement, collective or individual, can not be varied unless the bargaining processes under the Employment Relations Act are followed. A purported unilateral variation of an employment agreement, without bargaining, is unlawful.

How does it affect an employee who already has a superannuation scheme that their employer is contributing to?

An employee can still join KiwiSaver if they already have another superannuation scheme.  An employee may be entitled to some of the KiwiSaver benefits through another superannuation scheme.

If the employer makes contributions to the employee’s other scheme, this may count towards the KiwiSaver compulsory employer contribution.  If this is so, the employee may not be entitled to another employer contribution to the KiwiSaver scheme.  Certain criteria apply, so employees should ask their employer’s human resources section or existing scheme provider for more information.  It might be worthwhile discussing the options with a financial adviser.

What happens if the duty of good faith under the Employment Relations Act 2000 is not complied with, or the employment agreement is breached?

The first step in any employment relationship problem is to talk to other party involved to see if the matter can be resolved between the parties.  If not, parties to an employment relationship can seek the assistance of the mediation service provided by the Department of Labour.

If mediation does not resolve the dispute, parties can apply to the Employment Relations Authority to make a determination about their employment relationship problem.

The Employment Relations Authority may order payment of a penalty:

• for breaches of the duty of good faith, where the failure to comply with the duty of good faith was deliberate, serious and sustained, or was intended to undermine bargaining for an employment agreement, or
• where an employer fails to comply with the specific, minimum requirements for good faith bargaining.

Penalties can be up to $5,000, in the case of an individual, or up to $10,000, in the case of a company or other corporation.

Any employee may also raise a personal grievance in relation to good faith bargaining against the employee's employer, alleging that the employee's conditions of employment have been affected to the employee's disadvantage by some unjustifiable action by the employer.

Where the Authority determines that an employee has a personal grievance, it may provide for reimbursement to the employee of a sum equal to that lost by the employee as a result of the grievance or payment to the employee of compensation for the loss of the benefit the employee might reasonably have been expected to obtain if the personal grievance had not arisen.

The Authority may also require compliance with an employee’s entitlements, where these have unilaterally been varied by an employer.  Compliance is with the employee’s previous entitlements.  Compliance with specified provisions of the Employment Relations Act, including the duty of good faith and bargaining requirements is also able to be ordered. 

The Authority can also determine whether an employment agreement has been breached, and make orders to remedy that breach, including that the party in breach complies with the employment agreement, and/or pays a penalty for breaching the agreement.