Minimum Wage Increase
Updated: Feb 14
On and from 1 April 2023 the minimum adult wage in New Zealand increases from $21.20 to $22.70.
So, what does this mean for your business?
Well, if you already pay your staff more than $22.70 gross per hour, then there is no impact on your business.
However, if you have staff who are paid at the either the current minimum rate or less than the new $22.70 per hour rate, you will need to ensure that on and from 1 April, these staff are paid NO LESS than $22.70 per hour gross.
Cost or Investment
My first thought on this increase is, "Has the time come to stop thinking of staff as a cost and treat them as an investment?"
Some commentators have been talking about the flow-on effect of this increase to the minimum rate and how it will be a struggle for some small to medium businesses. While that will be the case for some businesses, I challenge the continued reference to wages as simply a cost. Is it time NZ businesses approached minimum wage increases as an investment in your staff rather than simply as a cost to your business?
While wages/salaries are without question a "cost" to a business, the contra view is also true. Namely, without staff the business would likely not be in a position to offer the products and/or services the business has to offer. It is the staff who generate the products and provide the services, so surely it follows that the staff should be considered an asset or investment in the business. Their success leads to the company's success.
There is no legal requirement to automatically adjust the wages of staff who currently earn $22.70 or more per hour. From a business perspective you may wish to maintain relativity between your existing pay rates, however that is purely a business decision and not one driven by legislation. If, from a moral position, you do wish to maintain relativity you need to consider what, if any, contractual obligations you have.
If you don't have a contractual obligation to maintain relativity within your employment agreements, you will need to offer a variation to staff if you intend to also increase their hourly rate. While this may seem counter intuitive, unless you have an increase written into the employment agreement, you are obliged to record the increase through a variation, with offer and acceptance.
In putting forward an offer of a variation to increases to staff wages remember you will need to keep a copy of the offer and acceptance (or rejection if not accepted by the employee), as well as be open to giving genuine consideration to any counterproposal.
Your collective agreement (if you have one) should account for increases to the minimum wage. If this is not the case, then a variation will also be required to adjust the contractual rates for staff. Where you wish to also address relativity of wage rates for unionised staff, those union members who are impacted by any relativity adjustment will also need to ratify a variation if the adjustment is not already addressed in the collective agreement.
Employers need to be aware that individuals and/or the union are also about to counter-offer your variation which may result in you settling on an increase that is more than the minimum wage adjustment.
Absorb or Pass-on Increase
Each business should undertake an assessment of its circumstances - there is no one size fits all approach. If the increase in minimum wage affects only a small number of your staff, then the overall impact on your wage bill will be small and this may also mean you can absorb the increase without having to increase the costs of your goods and services to end users. If you are going to maintain relativity with other wages, then the increased investment in your staff will have a greater impact on your wage bill. You will need to do your own assessment to determine whether you can absorb that extra investment cost or have to pass it on via increases in goods and services to end users.
When looking at increasing wages, you need to factor in the affordability and also the sustainability of the increased investment in your staff. Once you put wages up, they stay at that increased level forever, or at least until you next adjust them. That means the investment costs is a permanent investment cost - not a one-off.
Retail NZ View
Of note, in response to the increase in the minimum wage, a recent Retail NZ survey indicates that 57% of retailers are considering reducing working hours, 41% considering reducing staff to stay afloat, 69% considering increasing prices, 20% considering reducing store hours and 17% are considering closing down. Retail NZ state that this concerning given on average, the retail sector pays well above the minimum at an average of $26.65. Read their press release here.