Fair Pay Agreements in New Zealand: How can HR prepare?

How can HR stay one step ahead of this monumental change?

Fair Pay Agreements in New Zealand: How can HR prepare?

New Zealand’s employers are bracing for one of the most significant changes to the country’s labour laws after the government announced the details of its Fair Pay Agreements system.

Expected to be introduced into Parliament by the end of the year, the FPA system is set to follow in the footsteps of Australia’s Modern Awards. In principle, the aim of sector-wide agreements is to strengthen bargaining power for workers and regulate things like base wages, working hours, overtime and penalty rates.

Under the system, a union would be able to begin the process with the agreement of 10% of the workforce or 1000 employees, sparking a period of bargaining between the union and the peak body representing employers within that industry. If both sides agree on the terms of the FPA, it will go to a vote among employers and employees. A simple majority from both groups is needed for the FPA to be ratified. If it fails, bargaining resumes, but if it fails twice, the Employment Relations Authority will be called in to make the final decision.

The government said FPAs are needed to create a stronger “ground floor” for wages and prevent businesses from undercutting their competitors by paying staff less, contributing to a low-wage, low-value economy. But, business groups vehemently disagree. They believe FPAs will strangle employers, hampering their ability to hire new staff and grow if they cannot afford the industry-wide pay rates.

Read more: Can you legally pay someone less than minimum wage in New Zealand?

HRD spoke to Jason Ennor, CEO at My HR, who said like many employers in Australia have experienced, New Zealand businesses are likely to struggle against the complexity of the Fair Pay Agreement system.

“The complexity comes from the fact that we think about industry as an area of operation, like the retail industry or the hospitality industry. However Fair Pay Agreements and Modern Awards don't classify industries like that. Instead, they’re grouped by job type.

“For example, if you’re a small retailer with a few shops and 50 employees, you will be covered by the retail award. But you may also have distribution staff who come under a different award, or warehouse staff, manufacturing staff, clerks and admin staff. If you deliver, you might also be covered by a transport award.

“All of a sudden you've got five different Fair Pay Agreements applying to a workforce of only 50 workers.”

Ennor said small and medium businesses without a large, in-house HR or legal team will feel the pain points most acutely. While it will be some time before Fair Pay Agreements come into play, he urged employers to prepare themselves early by tidying up their existing workforce compliance.

“The best thing to do is to ensure you’re absolutely up to date with minimum standards right now. If you're in play with some good benefits that are over and above the minimum standards, you’ll find you have a lot less to do when the Fair Pay Agreements do eventually arrive,” he said.

“On the other end, if you operate from a standpoint of complacency and decide to wait and see what the Fair Pay Agreement looks like in a few years’ time, I personally think it is a risky strategy because you’ll be falling behind as the years go on.”

Read more: How to legally terminate redundant employees

Even after FPAs are legislated at some point next year, there will still be a lengthy negotiating process between employers and unions within each industry. But like all labour law changes, if businesses are already doing their duty as a fair and responsible employer, the changes should not be too damaging. The difficulty, however, will be applying the FPAs correctly, and this is where Ennor believes small and medium-sized businesses will benefit from seeking expert help.

In May this year, the government announced the design of Fair Pay Agreement system after several years of consultation between the working group, New Zealand Council of Trade Unions and BusinessNZ. The FPA system is expected to be introduced into Parliament in November, before going through a six-month legislative process. Once it passes into law, the Government plans to include four or five bargaining rounds each year, meaning for some industries, it will be several years until an FPA is introduced.

In Australia, modern awards have been subjected to widespread criticism since its introduction in 2009, both for the complexity and the inflexible nature of the system. Critics say the archaic system of categorising industries by role doesn’t align with a modern, diverse economy where new jobs are being created at an increasingly rapid pace.

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