Russell Drake explains….
WHAT IS THE “MEDIAN WAGE” AND HOW IS THIS IMPACTING ON PAY RATES?
For many employers, understanding the various minimum wage rates in New Zealand, is beginning to get extremely confusing. As we get calls regarding this on a regular basis we thought it appropriate to set these out clearly.
The two most common wages rates that we encounter are the Minimum Adult Wage and the Living Wage.
The Minimum Wage being a regulatory (set by the Government in legislation) rate that must be paid to all employees over 16 years of age, unless they are employed in a ‘starting out’ or ‘approved training’ basis. The minimum wage rate effective as of 1 April 2023, will be:
The Living Wage is not regulatory, and is a rate calculated annually and independently by the New Zealand Family Centre Social Policy Unit – on behalf of the Living Wage Movement. The basis of the Living Wage is to consider what the costs of basic expenses, plus some breathing room for rest activities and saving for a rainy day are. See here.
The Current Living Wage is $23.65 with this due to be reviewed again in August 2023.
While the above two terms will be familiar to most employers the term “Median Wage” will not. Effective as of 27 February 2023, the new Median Wage is $29.66 per hour.
The Median Wage is the minimum hourly rate of pay that must be provided to migrant workers offered employment under an Accredited Employer Work Visa must be paid at least the new median wage unless they work within an exempt category. The exempt categories are currently limited solely to Tourism and Hospitality where the minimum rate is set at $28.18 until April 2024, after which time the exemption will be lifted requiring the full Median Wage rate to be paid. Migrant workers to be employed under other residency visa categories will also be entitled to be paid at least the Median Wage.
Does this impact on businesses who are not intending to employ migrant workers?
Not directly, however as New Zealand is still in the midst of a ‘skills shortage’, the flow-on effects of the increase to the Median Wage will indirectly impact on the wage rate expectations of existing and potential employees. Already we are seeing pressure being exerted on employers who are subject to collective bargaining processes with Union’s to recognise that, if a migrant is required to be paid at least $29.66 – local existing workers should be entitled to minimum rates of at least the same level.
The push for Median Wage rates will therefore begin to place increased pressure on employers, over and above the expectations already existing from the increase in the Minimum Wage.
Statistics New Zealand data confirm that average ordinary time hourly earnings increased by 7.4% to the September 2022 quarter with the Labour Cost Index increasing by 3.4%.
This Labour Cost Index demonstrates that current wage rate increases are outstripping productivity and quality improvements – i.e. employees are only achieving the same outputs for a higher cost to the business.
When facing a potential recession this is particularly concerning for many employers.
How do we address this imbalance?
Within the collective bargaining process, we are now lodging counter claims with the union to link pay increases to productivity improvements. Therefore, in upcoming wage / salary reviews with staff it is well within the right of an employer to set expectations for output improvements that are linked to the increase in remuneration.
This can be a complex discussion and needs to be carefully documented in order to ensure that the new process is applied in a fair and equitable manner.
If this is something that you would like to consider implementing, please feel free to contact us to discuss what options may be available to you. Call the office on 07 838 0018 and ask to speak to Russell directly.