Fair Pay Agreements in NZ: What you need to know

The New Zealand Government is planning to implement a Fair Pay Agreement (FPA) system, which was introduced into Parliament on 29 March 2022. As an accountant, bookkeeper or payroll bureau, if you’re unfamiliar with modern awards in Australia, the Fair Pay Agreements are somewhat similar in seeking to regulate working conditions and pay for employees across a given sector.

What is the Fair Pay Agreements System in New Zealand?

As one of the biggest changes to NZ workplace legislation since the 1991 Employment Contracts Act, there’s a lot to unpack.

Whilst the cost of living has been increasing, high-income earners (such as doctors and lawyers) have seen their wages increase at nearly twice the rate of middle-income earners (such as cleaners and security guards). Why is this? 

In middle-income sectors, businesses are competing for contracts by offering lower prices through reducing wages and decreasing employment conditions in a "race to the bottom".

The Fair Pay Agreements will involve employers and unions advocating for employees, to set a minimum standard for all employees within that industry by ‘bargaining’ for minimum pay and employment terms.

What’s the proposed system?

Under the Agreements, employees will be able to initiate negotiations with employers if at least 10% of their workforce, or 1000 staff, agree to it. The Agreements are aimed at providing minimum fair pay standards for employees (particularly those in supermarkets, cleaning companies, security and early childhood centres). All FPAs must include certain topics, such as:

• Base wage rates
• Ordinary hours
• Overtime
• Penalty rates

Other topics can also be discussed though not necessarily agreed, such as:

• Redundancy
• Leave
• Health and safety

The government will also provide funding of up to $50,000 to support bargaining sides (unions who will represent employees, and employers who will choose representatives). An FPA will be vetted and agreed upon by the Employment Relations Authority and - if successful - brought into force by MBIE. This secondary legislation will apply to all employees within that industry.

You can read a summary of the proposed Fair Pay Agreements system from MBIE here.

Who is affected?

According to Workplace Relations and Safety Minister, Michael Wood, FPAs are targeted towards Kiwis who are working in critical roles, who previously lacked the power to advocate for improved pay and conditions:

“Fair Pay Agreements (FPAs) have long been one part of our wider work programme focused on lifting the wages of those on low to medium incomes.”

As such, the Agreements will affect a number of key players in the workplace, most notably:

• Employees: It is hoped that bargaining power and living standards for both employees and their families will increase, and that improved dialogue between employers and employees will flourish.
• Employers: The FPAs are aimed at creating an environment where businesses compete on quality of products and services, rather than on price and by driving down wages/conditions. It is hoped that businesses will also be incentivised to invest in education, training and innovation.
• Payroll providers: Whilst the process of setting up FPAs will be time consuming and complex, payroll providers will need to ensure their systems are compliant (once the changes are introduced). Payroll software will also need to account for the possibility of a business being covered by multiple agreements, thus requiring an added layer of complexity in their software solution.

What happens next?

It’s a waiting game at this point - the Bill is going through the full parliamentary process, with submissions (for people who want to comment on the Bill) being accepted until 19 May 2022. The Bill is expected to be passed at the end of 2022, with the FPA system commencing shortly after.

With any change to legislation and the industrial relations framework, it will take time to be implemented and to understand the extent to which payroll will be impacted.

We’ll be updating this blog as we receive more information on the Fair Pay Agreements. As always, KeyPay is on top of New Zealand legislation and will keep your accounting, bookkeeping, bureau firm and clients informed of any changes that are made to the software ahead of time. 

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Disclaimer: The information in this article is current as at 30 August 2022, and has been prepared by KEYPAY LIMITED PARTNERSHIP (NZBN 9429048779524) and its related bodies corporate (KeyPay). The views expressed in this article are general information only, are provided in good faith to assist employers and their employees, and should not be relied on as professional advice. The Information is based on data supplied by third parties. While such data is believed to be accurate, it has not been independently verified and no warranties are given that it is complete, accurate, up to date or fit for the purpose for which it is required. KeyPay does not accept responsibility for any inaccuracy in such data and is not liable for any loss or damages arising either directly or indirectly as a result of reliance on, use of or inability to use any information provided in this article. You should undertake your own research and to seek professional advice before making any decisions or relying on the information in this article.