Fair Pay Agreements (FPAs) are coming!
The Fair Pay Agreements Act has passed into law and the FPA system will come into effect from 1 December 2022.
FPAs represent one of the most significant reforms of the New Zealand labour market in recent times. The government says the agreements will “support the lifting of incomes and working conditions of everyday kiwis”.
FPAs aren't without controversy, with BusinessNZ refusing to be the government’s nominated partner for implementing them, due to the “one size fits all” system it creates.
Both the National and ACT parties have said they will repeal the FPA Act, but the general election isn’t until late-2023 and the outcome isn’t certain. MyHR’s CEO Jason Ennor says: “There will likely be 6 FPAs in place by the time the election rolls around.”
For all intents and purposes, FPAs are here to stay so businesses should start gearing up now in preparation.
How will Fair Pay Agreements work?
Fair Pay Agreements (FPAs) will set legally-binding minimum employment terms and conditions for an occupation or industry as a whole.
Currently, the terms and conditions of employment are contained in an employment agreement, which is either an individual agreement (negotiated between the employer and the employee) or collective agreement (negotiated between the employer and a registered union, that represents their member employees).
What will FPAs cover?
FPAs must cover certain terms and conditions of employment, including what work is covered by the agreement, standard hours, minimum base rates (including overtime and penalty rates), training and development, leave entitlements, and how long the agreement applies for (no less than 3 years and no more than 5 years).
Some topics must be discussed during bargaining but don’t have to be agreed on, e.g. redundancy, flexible working, and health and safety.
Other terms of employment can be included in an FPA if both bargaining parties agree.
When terms aren’t agreed on, the employee would receive the more 'favourable' terms. This could be either collective employment agreement, legislative requirements, or company policy that allows for more than legislation requires.
Note: the FPA encourages second-tier bargaining i.e collective employment agreement bargaining in addition to being covered by a FPA.
Which industries will be impacted by the Fair Pay Agreements Bill?
All Kiwi workers could eventually be covered by an FPA, but the legislation is aimed more toward low-paid occupations and industries.
The Council of Trade Unions has identified hospitality workers, supermarket workers, bus drivers, security officers, cleaners, early childhood education workers, and the forestry sector as the first industries that could go through the pay agreement process.
How is the FPA process triggered?
The FPA system provides a framework for collective bargaining to set minimum pay and working conditions across entire industries or occupations, rather than just between unions and particular employers, as currently happens.
Unions will initiate bargaining with employers when:
- Either at least 10% of employees or 1,000 employees who would be covered by the proposed FPA support the application to initiate bargaining (whichever is lower), or
- The union can demonstrate there is significant public interest in the initiation of an FPA (by using a public interest test).
Unions must make their "best endeavours" to notify impacted employers that the FPA process has begun, however, the details of what constitutes "best endeavours" have not been clearly defined. It is possible employers may not be aware of or involved in the FPA process, but they would be legally bound by the terms and conditions set.
How are terms and conditions set?
The union representing the industry’s workers will lead negotiations with employers, who will choose representatives to form a business interest group. Not all employers in an industry will be involved in bargaining, but all employers will be covered by the resulting FPA, even if they disagree with the outcome.
The initiating union must decide which work they want to be covered by an FPA, but parties can later agree to change the coverage.
FPA bargaining parties must do their best to represent all those in coverage (including non-members) and to ensure Māori interests and views are effectively represented.
If an agreement on terms and conditions is reached, the proposed FPA will be vetted by the Employment Relations Authority (ERA) and would then go to a vote.
To be ratified, it would require the support of the majority of employee and employer voters (employers have 1 vote per employee in coverage or a slightly higher vote weighting if they have fewer than 20 employees in coverage).
If parties can’t agree after 2 rounds of negotiating, the ERA will determine a solution (the ERA will also set the terms of a FPA if no party comes forward to negotiate on the side that didn't initiate bargaining).
Find out more about how FPAs will work at MBIE.govt.nz.
Is there any flexibility for employers?
All employers covered under a FPA must ensure the employment agreements of all their covered employees have terms that are the same as or better than those in the FPA.
However, an FPA can allow for exemptions for businesses that are in significant financial hardship.
An FPA can also set regional differences, and other differential terms if they comply with minimum employment entitlements and the Human Rights Act.
Could there be more than one FPA for my workforce?
Definitely, if you have a large business with a variety of roles.
FPAs can cover an occupation (e.g. all bakers) or an industry (e.g. all bakers in supermarkets). If there is an overlap in coverage between two FPAs, the agreement with more favourable terms applies.
What does collective bargaining mean?
Collective bargaining is the process used for negotiating collective employment agreements between unions, representing the employees who are their members, and employers.
Find out more about collective bargaining at Employment.govt.nz.
Will there be support for the FPA bargaining process?
The government will provide support with funding (up to $50,000 per bargaining side, with additional funds if the side has low rates of membership), training, and a bargaining support person.
This is in anticipation of 4 FPAs per year.
Will contractors be covered by FPAs?
Currently, contractors aren’t included, but the government plans to begin work to incorporate contractors into the Fair Pay Agreements Act.
What should I do now?
Fair Pay Agreements will add more complexity to employment and require more administration for employers.
Jason says, “Much of the complexity arises from the pay structures.” Instead of just raising pay levels - for example, by moving the minimum wage to the living wage - FPAs keep the minimum wage, then apply things like:
- time + 1/4 during certain hours
- time + 1/2 during certain hours
- double time during certain hours
- laundry allowance of $x
- shoe allowance of $x
- minimum training standards per annum
- pay linked to levels of work based on the content of your job description, not your performance: Level 1 Retail Worker, Level 2, Level 3 etc.
How can MyHR help employers?
To deal with the added complexity FPAs will bring to employment, the best solution is for employers to get an expert HR provider. Or even better, get MyHR.
“We have a lot of experience working with the Australian employment system of Modern Awards and registered agreements, so we know how they work,“ Jason says. “FPAs will be similar in setting minimum pay and conditions across industries.”
MyHR’s combination of expert HR consultancy and agile HR software will help employers navigate the new employment landscape under FPAs and ensure you are always applying the correct agreement to your workforce.
Read also: FPAs - Overdue shake-up or bureaucratic nightmare?
