Minimum wage update 2021
31 March 2021
From 1 April 2021, the adult minimum wage will increase to $20.00 per hour.
At the same time, the minimum training rate and the starting out rate for young workers will increase to $16.00 an hour.
Even if your business doesn’t hire many (or any) employees on minimum wage, a raise in pay rates can still impact your business. Common concerns that HR professionals may face when minimum pay rates increase include managing pay relativity, examining business budgets, and keeping records up to date.
To help you address these concerns, here are six questions to ask yourself to prepare your HR department for the upcoming changes to the Minimum Wage Act 1983.
Minimum wage rates as of 1 April 2021:
- Adult rate: $20.00 per hour
- Training rate: $16.00 per hour
- Starting-out rate: $16.00 per hour
These are the new minimum rates that you must pay employees for every hour they work. So, wage workers must have an hourly rate that is at least the minimum wage. And for every extra hour you ask them to work, they must receive at least the minimum wage.
To make sure salaried workers are earning at least the minimum wage, you can divide their pay by the number of hours they work each pay cycle to ensure the average hourly rate is at least the minimum pay rate. If you pay weekly, minimum pay requirements must be met every single week without exception.
1. Have you let your minimum wage employees know about the pay increase?
All full-time employees earning $18.90 per hour must be paid at a new rate, that’s no less than $20.00 per hour, from 1 April. You’ll need to let your minimum wage employees know about their pay increase on 1 April with a written variation to their agreement. You can send this by email or letter.
All minimum pay changes must appear in the next pay slip after 1 April 2021. It’s possible to delay the increase; for example, if the administrative load makes it impossible to meet the deadline. But you’d still be required to backpay affected employees to 1 April as soon as possible. You should proactively communicate any delays to your staff if you find yourself in this situation.
2. Are all your employment agreements up to date?
Sometimes, in the process of reviewing who’s on minimum wage, you can uncover contracts that are no longer current. If this happens, don’t panic! It’s a great opportunity to get your record-keeping up to date (and at least you found them, and not the Labour Inspectorate!).
3. Do you have a plan to manage pay relativity?
The upcoming minimum wage increase only legally applies to the minimum rate of pay – there’s no requirement that every single employee receives a $1.10 wage increase.
However, some employees earning more than the minimum wage may want to negotiate – or expect – a pay rise to reflect their level of experience or seniority compared to less skilled or experienced colleagues who are now earning similar or better rates than them.
Also, if you pay above the minimum wage to compete with other firms in your industry for top talent, you’ll need to plan for relative increases so you can maintain this strategic position.
In determining a strategy for managing pay relativity, it’s essential to manage affordability, properly understand workforce expectations, and manage them proactively. Two methods to consider include:
- Increasing an employee’s $20.00 an hour wage by $1.10 an hour (to maintain the relative difference between their salaries and the minimum wage).
- Increasing an employee’s pay rate by an amount that’s reflective of individual ability and performance. You’d need to substantiate this increase through a performance review.
Another way to maintain your ability to attract and retain good people is to consider other non-cash benefits. Especially if remuneration increases are not a viable option, you could offer benefits to more experienced workers in the form of mentoring, training and development opportunities.
4. Have you checked your payroll systems?
It may seem like an obvious question, but have you checked in with whoever manages your payroll system to ensure they’re ready for the changes?
Even automated payroll systems can make mistakes. And, if you’re still running off a paper-based or manual payroll process, then you must be confident that the wage calculations are correct from 1 April.
5. Do you have salaried workers on minimum wage who could be at risk of working more than 80 hours per fortnight?
From 1 April the new minimum fortnightly rate for full-time salaried employees who work 40 hours per week, is $1600.00. If the applicable employees’ hours of work go above 80 hours per fortnight, then you must pay them an extra $20.00 for each and every hour worked over the 80 hours.
It’s important to check whether any of your low-paid employees on salary are likely to work more than 80 hours in a fortnight. There’s a risk that if an employee earning close to the minimum wage, who works more than 80 hours every two weeks without a top-up for every extra hour, could end up making less than the minimum fortnightly income of $1600.00. This would incur a breach of the minimum wage act.
6. Do you pay wages or salary inclusive of KiwiSaver contributions?
If your employee’s pay is inclusive of KiwiSaver, you’ll need to ensure that you pay at least the new minimum wage after deducting their KiwiSaver contribution. For example, if you take a total remuneration approach to KiwiSaver for an employee who’s on minimum wage, their pay rate should increase to $20.60 an hour. This additional 60 cents would ensure that you’re still paying them the new minimum rate after the 3 per cent employer KiwiSaver contribution.
By working through the six questions above, you can be confident that your business is well-prepared for the minimum pay increase on 1 April 2021.
If you have any questions about the Minimum Wage Act, or how to prepare for these changes in your business, please contact the enableHR team.
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