A “total remuneration” arrangement allows an employer to set a fixed remuneration amount for each employee.  If the employee joins KiwiSaver, the cost of the employer contribution comes out of the employee’s pay.

During 2007 and 2008 the law relating to total remuneration arrangements was subject to complete legislative confusion.  Total remuneration approaches were permitted, then banned, then permitted again.

In December 2008, the new Government made several changes to KiwiSaver legislation, and included in this was the unexpected change to total remuneration packages and employer contributions.

The Government repealed the amendments made against total remuneration in the Employment Relations Act 2000.  Those amendments had prevented employers treating otherwise comparable KiwiSaver employees less favourably than non-KiwiSaver employees.

The result is that parties can now negotiate in good faith, to include compulsory employer contributions to KiwiSaver in a total remuneration arrangement for all employment agreements made after 13 December 2007.

Under the current law there are two approaches an employer can take:

  • A default approach:  This is the standard approach taken by employers.  If an employee joins a KiwiSaver scheme, the employer contributions are paid in addition to the employee’s gross salary or wages.
  • A total remuneration approach:  this allows an employer to set a fixed remuneration amount for each employee.  If the employee joins KiwiSaver, the cost of the employer contribution comes out of the employee’s pay.

The change in legislation has created a risk for employers using total remuneration packages, as the validity of existing total remuneration arrangements will vary, depending on when they were agreed to.

It is important for employers to check whether any total remuneration arrangements comply with the law, and, if not, they may want to “re-agree” arrangements made before 13 December 2007 to ensure they are legal.

For all total remuneration arrangements entered into after 15 December 2008, it is now a requirement for all employment agreements to include a total remuneration clause that outlines the arrangement, and accounts for the amount of the employer’s compulsory contributions.  Rainey Collins has a suitable standard clause that complies with the legislation.

Despite the legislative changes, total remuneration provides several benefits to employers.  Wage budgets are certain and all employees are treated equally.  If you are considering entering into a total remuneration arrangement and would like to discuss your obligations under the new legislation, please call Alan Knowsley for a relaxed and confidential initial chat.