Fair Pay Agreements: Overdue shake-up or bureaucratic nightmare?

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

Many of you will be aware of the Fair Pay Agreement system the government is going to implement.

There’s a lot of talk about them as they represent the biggest shake-up of the employment landscape in decades. I’m not convinced the changes are going to achieve what the government hopes they will, and instead, the system will be more complicated, making compliance trickier and more expensive for employers. 

Let’s have a look at Fair Pay Agreements (FPAs) and the complexities they will bring to employment. 

What are Fair Pay Agreements?

In the information released this month, the government says FPAs are “a new mechanism for bargaining to set binding minimum terms and conditions across an occupation or industry.”

Employers and unions within a sector will come together to bargain for minimum terms and conditions for all employees.

I’d describe FPAs as government-mandated collective employment agreements, much like Australia’s Modern Awards.

Negotiations to set the minimum standards will be led by the relevant union, Business NZ, and a selection of employers. Not all employers in an industry group will have a seat at the bargaining table but all employers will be covered by the resulting FPA, even if they disagree with the outcome.

The FPAs will be for individual job categories, which means a single business could be covered by multiple FPAs.

For example, a retailer won’t just be covered by the Retail FPA, they could have shop staff covered by the Retail FPA, warehouse/distribution staff covered by the Distribution FPA, and office staff covered by the Clerks FPA. Potentially, depending on their business structure, they might also have some home-delivery staff covered by another FPA and/or manufacturing (if they make their own products) covered by another FPA.

Boon for lawyers and consultants

The beauty of current NZ employment law is that it establishes a single set of minimum standards for all industries, with a small number of exceptions, e.g. Starting out wage vs. the minimum wage.

For the most part, every employee, regardless of industry, must have a minimum rate of pay, leave entitlements, and employment protections.

This means it’s pretty easy for employers to understand what to do when they offer someone a job. They can work up from the minimum standards, depending on their industry, personal values, labour availability, skill levels required etc., but not undercut them.

By comparison, FPAs are going to be long and complex; they establish rules for base rates of pay, pay scales, allowances, and overtime, which will all be different depending on the FPA itself.

This is vexing news for employers, because compliance and administration will be more demanding. While the government says the proposed system “will include support for bargaining parties to help them navigate the bargaining process and reach an outcome”, I can see a boom time for lawyers and HR consultants, because, realistically, employers are going to need expert help navigating this new landscape.

The public sector will also have to hire loads more bureaucrats to write, monitor, and enforce these new agreements.

It will be interesting to see how FPAs will play out for the unions, as they will obviously have a greater role in setting industry standards via FPAs, however, it’s unclear if this will drive up membership, as workers will benefit from the terms negotiated by the union without needing to join and pay the subs.

Better ways to address wage stagnation

One of the driving reasons behind the government’s keenness on FPAs is addressing what it describes as a "race to the bottom" with low wage growth and businesses competing for contracts by reducing wages or employment conditions.

The label of Fair Pay Agreement itself is pretty sneaky, because it makes questioning them sound like you’re opposed to the concept of fair pay.

But that’s casting too wide a net. Raising wages and paying people fairly should absolutely be a priority, but I have seen no direct evidence that this cumbersome, bureaucratic mechanism will achieve it.

If the government genuinely believes we are in a "race to the bottom" and that NZ has a terrible, low-wage culture, then I think the best things to do are: 

  1. Share the data so we can all see the gaps they’re talking about rather than relying on emotive slogans and (potentially unrelated) anecdotes.
  2. If the gap is clear, then raise the baseline, e.g. make the minimum wage the living wage.
  3. Look at the parts of the tax regime that hurt low income earners e.g. scrap secondary tax, as it hurts people with two part-time jobs, and introduce a tax-free threshold like many other countries, so part-time workers don’t get over taxed.
  4. If there are industries with particularly stubborn low-wage problems and/or poor employment practices (as evidenced by Labour Inspectorate data), target those industries rather than the whole nation.

Have your say

The government aims to release a draft version of the FPA Bill later this year and people will have an opportunity to comment on the Bill during the Select Committee process. 

I encourage people to get involved, read the legislation carefully, and give considered feedback. You can’t complain about laws if you don’t contribute to the process of making them.