Proposed employment law changes a potential minefield for SME business

Jason Ennor, Co-founder and CEO at MyHR
By Jason Ennor, Co-founder and CEO at MyHR

With another three years of a Labour-led government, we can expect significant changes to employment law that will fundamentally change a number of the established norms in New Zealand employment relationships.

The changes represent significant gains for employees and unions, which will come at increased cost and compliance obligations for Kiwi businesses.

The changes include:

  • Doubling sick leave.
  • Allowing “sick leave to be taken when needed”.
  • Increased minimum wage coupled with increased overall entitlements via Fair Pay Agreements.
  • Requirements to record pay-rates by gender, ethnicity, and age to ensure pay equity
  • Adding security guards to the vulnerable workers category.
  • Extending employment protections to “Dependent Contractors”.

The specific detail is light in some areas, as the laws are not yet written, but if introduced they will require serious consideration for small and medium-sized enterprises (SME) employers.

Here’s a quick drill-down on what each of these changes could mean:

Sick leave

Labour has promised to increase the annual sick leave allocation within the first 100 days of being in government, raising it from five days to 10 days a year – that’s two working weeks for a full-time employee.

Remember that the Holidays Act does not pro-rata sick leave, meaning under this new entitlement, a part-time worker who only works one day per week could still get 10 days sick leave – effectively 10 weeks off work.

Other proposed changes to the Holidays Act include “allowing sick leave to be taken when needed”, which could reduce an employer’s ability to challenge or withhold sick leave if they suspect an employee is not actually sick.

Minimum wage entitlements

On 1 April 2021, the adult minimum wage will increase to $20 per hour. This change was clearly signalled three years ago when Labour first came into power, however employers had hoped the increase might be delayed due to the recession brought on by COVID-19.

It won’t; the change is confirmed.

Fair Pay Agreements

Further to the minimum wage, Fair Pay Agreements are on the way. These agreements establish minimum employment entitlements by industry group. They are effectively government-mandated collective employment agreements.

Australia has them. Over there, they’re called Modern Awards. Australia is a very relevant and close-to-home example of what these agreements mean. They are documents of 50-plus pages outlining all the employment terms and employee rights.

They are typically much more complicated than normal employment agreements and will cover minimum entitlements for pay, hours, overtime payments, weekend work, allowances, long service leave and more.

There are many things that are not currently required in New Zealand, but may be mandated in the future under these agreements.

Employers are required to adhere to the agreements as a minimum. This will add significant complexity to the employment landscape and create lots of ongoing work for the government bureaucracy.

In Australia, there have been a number of attempts at simplifying or removing them.

Kiwi employers can expect employment standards to be more complex, which will mean spending more on professional support to interpret them, more disputes, and bigger penalties if you fail to comply with all the terms.

Pay equity

The Labour Party website states: “We will make it easier for women to gain pay equity in their organisation or across their industry, by ensuring there are better records of pay equity across New Zealand, including by ethnicity and age as well as gender.”

Employers will be required to accurately record pay and benefits for all employees that can be easily categorised. They will also likely be required to disclose these records under certain circumstances if they are in a pay equity dispute.

Dependent contractors

This change could affect tradespeople, courier drivers, taxi drivers, farm workers, IT / software contractors and more. The traditional approach to subcontractors (or “subbies”) in the building industry or self-employed courier drivers could be coming to an end.

Labour states: “There are over 140,000 self-employed contractors in New Zealand, representing 5% of the working population, half of which (71,200) rely on one client or business for the majority of their work.”

The government’s plan is to “work through the details”, but they have stated that: “At a minimum we would want to ensure that the right to collectively bargain is extended, and we would also look at extending statutory minimum entitlements like being able to take sick leave.”

This could mean the sub-contracting builder, who only works for one building contractor, will be able to take paid sick leave and claim other standards. Critically, this could extend to termination, meaning if a job was shut down, the main contractor may not be able to cease the contract and might have to consider proper redundancy consultation.

It may also mean that dependent contractors could be able to make personal grievance claims.

Holidays Act review

In good news for employers, the government will review the Holidays Act, which is an unnecessarily difficult piece of law that has needed updating for some time.

When employers like the Police and the Ministry of Business Innovation and Employment have been hit with massive holiday back-pay due to failing to adhere to the Holidays Act, the signal is pretty clear. How can anyone expect small or medium-sized businesses to get this right?

Changes to this Act will be very welcome.

The new employment landscape

If these changes are delivered, the new employment landscape will be one of increased regulation, increased cost, and more avenues for dispute.

As always with such changes, large Kiwi employers will be able to roll-out their big HR teams and lawyers to achieve compliance.

Unfortunately, New Zealand’s small business owners will be left behind because of a level of complexity that will require professional advisory, thereby driving up cost. Or a lessened appetite for risk due to fear of claims.

Navigating your industry fair pay agreement trying to determine if your long-term subbie is now able to claim employment benefits on top of their contract payments, then dealing with increases to apprentice wages and sick leave, while dismissing people gets harder... it sure makes employing new people as a small business owner sound very daunting indeed.