Some welcome certainty for employers is at last in sight following the lack of clarity which has, to date, surrounded some of the key details of the KiwiSaver legislation. Last week, the Finance & Expenditure Committee reported back on the Taxation (Annual Rates, Business Taxation, KiwiSaver, and Remedial Matters) Bill and there are some interesting developments for employers.
In this newsletter:
- Total remuneration approach to compulsory employer contributions – can be negotiated after Bill becomes law
- Employer tax credits
- Double dipping
- Transitional rules
- Casual employment
- Update on Employment Relations (Flexible Working Arrangements) Amendment Bill
Total remuneration* packages
The Government does not want compulsory employer contributions to be funded by employees. As a result, compulsory employer contributions must initially be paid on top of gross salary or wages, despite any contractual arrangements to the contrary between the employer and employee.
However, employers will be relieved to learn that compulsory employer contributions can legitimately be negotiated to form part of a total remuneration package from 13 December 2007**, subject to certain good faith obligations being met.
*“Total remuneration” means a remuneration package that includes any required KiwiSaver contribution. If an employee elects to join a KiwiSaver scheme, their salary reduces by the amount the employer is required to contribute. This approach is common in Australia, where superannuation is compulsory.
**We expect this date is subject to change depending on when the Bill becomes law.
Employer tax credit
A tax credit of up to a maximum of $20 a week will reimburse employers (at least partially) for the compulsory employer contributions they are required to make for an employee.
Officials have recommended that employer tax credits should be available only to the extent that employers themselves pay or part-pay for the compulsory employer contribution. Presumably, this means the tax credit is not intended to be available when the employer adopts a “total remuneration” approach.
At this stage, that recommendation does not appear to have made itself into the Bill and we can see it being hard to administer (but watch this space for developments).
Contributions to existing employer schemes
Without appropriate amendments to an employer’s registered superannuation scheme or existing participation agreement, that employer will be required (in most circumstances), in respect of an employee employed from 1 April 2008, to pay compulsory employer contributions to a KiwiSaver scheme on top of any contributions which it has agreed to make for the benefit of that employee to a registered superannuation scheme.
However, there have been a number of amendments to the "double dipping" provisions which are designed to mitigate the effect on an employer that is required to contribute to both KiwiSaver and to an existing employer scheme.
Employers who provide superannuation subsidies under long-term collective agreements established before 17 May 2007 will be able to have those superannuation subsidies offset the employers’ compulsory employer contributions.
Another win for employers is that employer contributions to an existing superannuation scheme will count towards the compulsory employer contribution rate to the extent that the contributions are vested by the end of the fifth year. In other words, contributions to an existing scheme will not have to vest immediately to count.
Initially, the transitional rules whereby an employee’s minimum contribution rate (currently 4% of gross salary) may be shared between the employee and his or her employer were to only apply prior to 1 April 2008. However, the reported-back version of the Bill now enables all employees, regardless of when they were employed, to use the transitional rules. Under such an arrangement, employees may contribute a minimum of 2% towards their minimum contribution rate until 1 April 2010, 3% until 1 April 2011, and then 4% from 1 April 2011.
The proposed amendment to the definition of temporary employment remains the same as the first version of the Bill – employees that receive holiday pay along with their salary or wages will not be subject to the automatic enrolment rules. This will make life much easier for companies that frequently use casual staff – at the moment, the KiwiSaver Act requires automatic enrolment after 28 days of continuous employment.
Not to mention…
Various other areas of uncertainty have also been resolved. For example:
- KiwiSaver contributions will not be deducted from redundancy payments, accommodation benefits or taxable allowances for accommodation and living costs overseas
- ACC weekly compensation and paid parental leave are to be treated as salary or wages for KiwiSaver purposes. However, parental leave payments out of public money and any statutory loss of earnings compensation are not to be treated as salary or wages for compulsory employer contribution purposes, and
- the penalties for employers if they do not contribute as required have been clarified, as have provisions relating to secondment arrangements and auto-enrolments.
We anticipate that the Bill will be enacted before Christmas, and it is of course subject to change until enacted. Given that the compulsory employer contributions provisions take effect on 1 April 2008, employers should start thinking now about how compulsory employer contributions will impact upon their HR policies and remuneration packages. Click here
to view our latest issue of SuperScoop
, which looks in more detail at other key features of the reported-back Bill.
Update on Employment Relations (Flexible Working Arrangements) Amendment Bill
The Employment Relations (Flexible Working Arrangements) Amendment Bill has just been passed by Parliament.
The Act comes into force on 1 July 2008 and we will provide you with further information closer to that time.