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Employers should add 2% to those on minimum wage

 

Q.      Are employer contributions deducted from a person’s hourly wage?  I am earning the minimum hourly wage of $13.50 - do both my contributions and my employer contributions come off that?  I am 18 years old and this is my first job.

 

A.     The minimum hourly wage is set by law.  It is currently $13.50 per hour for everyone over 16 - with some exceptions for new entrants and those in training aged 16 and 17.  As you are over 18 you should receive the minimum wage.

 

At 2% your KiwiSaver contributions will be 26c per hour or $10.40 for a 40 hour week, and will come out of your $13.50 per hour. 

 

Your employer contributions should be on top of your hourly rate.  At 2% you should get an extra $10.40 a week (less tax) from your employer paid into your KiwiSaver account. 

 

However, not all employers interpret the legislation correctly.  A case was brought to the Employment Court in October, and the judges ruled in favour of the two employees whose employer was deducting the employer contributions from their $13.50 per hour wages.  In their judgement, Chief Judge Colgan and Judge Inglis ruled that the employer was in breach of Section 6 of the Minimum Wage Act.

 

The judges’ ruled that deducting contributions from the minimum wage undermined two key purposes of KiwiSaver, namely “to encourage all workers to join the KiwiSaver Scheme to make provision for their retirement, and to make the Scheme affordable.”

This decision has major implications for employers.  It is quite likely that many deduct the employer contribution from their workers' minimum wage.  Costs will increase further when employer contributions increase to 3% from 1 April 2013.

 

If you are in this situation as an employee, what should you do?  Do you complain to your employer or accept the situation, for now?  You have done well to find yourself a job.  The first job is often the hardest to get and you are now getting valuable training.  If you are struggling to make ends meet you can ‘opt out’ of KiwiSaver, but for the sake of $10.40 a week you should try to manage on what you are getting and join the Scheme while you are young.  Once you get to a stage where your employer values your skills and experience you could ask for a wage increase. 

 

And it could be worse.  The current Government has proposed a Starting Out wage for young people from 1 April 2013 of $10.80 per hour, to encourage employers to take on more young people.  This may include 18 and 19 year olds who have been on a benefit.  That makes your current rate of pay look quite generous by comparison.

 

 

 

Shelley Hanna is an Authorised Financial Adviser FSP12241.  Her disclosure statement is available on request and free of charge by calling 8703838.  The information contained in this article is of a general nature and is not intended to provide personalised advice.  If readers have any KiwiSaver questions they would like answered please go to www.peak.net.nz or email shelley.hanna@peak.net.nz.

 

Published in the Hawkes Bay Today 18 December 2012