Last month, the coalition government announced a "cautious increase" to the national minimum wage, raising it to $23.15 an hour from 1 April 2024.
The 2% increase is relatively small compared to some of the rises we saw under the previous government.
Workplace Relations and Safety Minister, Brooke van Velden, cited the "economic headwinds" of low unemployment, a softening labour market, and muted economic growth as reasons for the moderate increase.
This could be good news for cash-strapped businesses, but all Kiwi employers are affected in some way by rises to the minimum wage, not just those employing minimum-wage workers.
So now we know the figures, every business should begin planning for the year ahead.
Your legal obligations
When it comes to increases to the minimum wage, being on top of your legal obligations and budgeting is key.
Remember, all employees must be paid at least the minimum wage for every hour they work.
It doesn't matter if they are full-time, part-time, fixed-term, casual or migrant workers, or whether they are paid by wages, salary, or commission.
Also remember that there are 3 minimum wage rates:
- Adult - pretty much everyone over 16, other than are starting-out workers, trainees, or employees covered by a minimum wage exemption.
- Starting-out - for certain employees under 20 who haven't completed 6 months of continuous employment with their current employer or who must do industry training for at least 40 credits a year to become qualified.
- Training - for employees aged 20 or over who are required to undertake at least 60 credits a year in an industry training programme to become qualified.
A quick checklist
Here’s what you should do to prepare your business and your people for the minimum wage increase:
- Calculate the full impact of the minimum wage increase and its impact on holiday pay, Kiwisaver, ACC, and other employee entitlements.
- Communicate the relevant changes to impacted employees.
- Update your employment agreements (or record the change in a letter of variation) to ensure compliance with the increases.
- Update your payroll processes and systems.
- Review the prices of your goods and services in light of the increase, and communicate to customers in advance.
Look closely at your pay rates
The impact of minimum wage increases will go beyond the lowest paid workers and all organisations need to create a robust and practical remuneration strategy - including factors such as internal wage relativity and external benchmarking - to ensure they can attract and retain the necessary talent to succeed.
Another major factor to weigh up is whether your pay increases are keeping up with the rate of inflation. The most recent figures from Stats NZ put the annual inflation rate at 4.7%, while annual wage growth (measured by the labour cost index) was 4.3%.
Clearly, if you are increasing your employee’s wages by anything less than the rate of inflation, your people are effectively going backwards financially and may look around at better-paying options, especially in a labour market with ongoing skills shortages.
Internal wage relativity
Internal wage relativity defines the pay-rate relationships between your workers. As the minimum wage jumps, there is a risk that the relative difference for more senior positions is eroded if their salaries don’t keep up with the people they are managing.
Consider all pay rates in your business and factor wage increases into budgets or you could lose valuable staff if people feel they are not being fairly compensated for the additional workload and stress that comes with more senior positions.
External benchmarking
While internal wage relativity is a big issue for hierarchical, wage-based organisations, these are not the only workplaces that will be affected by minimum wage rises. The issue of external benchmarking will also come up.
When considering salary and wage rises, organisations should consider a range of factors, which generally include all or some of these:
- The organisation’s own remuneration strategy.
- External market rates.
- Average industry pay rise percentage.
- Internal relativity.
- Business performance.
- Individual performance.
- Value of the role.
- Length of service.
- Resourcing needs.
- Resource availability.
- Business / growth strategy.
The minimum wage increases will have an impact on the external benchmarked factors on this list, which in turn will flow on to the internal factors.
People in New Zealand’s lowest paid jobs could be getting more money and receiving pay rises at a higher rate than other workers (see above).
Given the competitive labour market, high inflation, and cost of living pressures, employee’s may also request more money at pay review time.
Employers who already pay above the minimum wage to attract and retain staff will clearly have to adjust to maintain this position.
In professional services, entry-level graduate positions will also be affected. Companies will likely need to pay a bit more to remain competitive and also do a much better job at promoting the medium- to longer-term advantages of starting in a grad role.
The implications and knock-on effects of the coming minimum wage rises will have an impact on almost all workers in Aotearoa, so be prepared. Employers who act early and factor this in will be at an advantage in this labour market.
