Payroll & Finance
Fair Pay Agreements: What employers can expect
November 2, 2022
Fair Pay Agreements (FPAs) are coming!
The Fair Pay Agreements Bill has passed its third reading in parliament and will now pass to Royal Assent to become an Act. The FPA system will come into effect on 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”.
The bill isn’t without controversy, with BusinessNZ refusing to be the government’s nominated partner for implementing the bill, due to the “one size fits all” system it creates.
Both the National and ACT parties have said they will repeal the FPA Bill, but the general election isn’t until 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?
The Ministry of Business, Innovation & Employment (MBIE) says all FPAs must cover certain terms and conditions of employment, e.g. base wage rates, ordinary hours, overtime and penalty rates.
In its report to parliament on the bill, the Education and Workforce Committee proposed expanding these minimum terms and conditions to include leave entitlements and “training and development”. Under the original drafting of the Bill, these terms were some of the topics that must be discussed during bargaining but don’t have to be agreed on. Other mandatory topics for discussion are 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 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 a representation threshold of 10% or 1000 workers within the industry group is reached (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.
Find out more about how FPAs will work at MBIE.govt.nz.
Is there any flexibility for employers?
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?
How can PayHero help employers?
Since its inception, PayHero has focused on helping customers pay employees right. The FPA adds even more complexity to the world of payroll, but a good system takes the pressure off. PayHero is always kept up-to-date with changes to the Holidays Act and other applicable laws. Payroll changes ushered in by the FPA will be no exception.
Features such as overtime and allowances will be further enhanced so employers can easily manage any new payroll obligations that emerge from industry bargaining. PayHero is trusted by the best in the business, and the team will continue to work hard so the transition to Fair Pay Agreements is smooth for everyone.
How do PayHero & MyHR work together to help employers?
PayHero and MyHR is the perfect duo to help Kiwi businesses conquer Fair Pay Agreements. By connecting the two systems you’ll get automation of calculations and expert support, giving you peace of mind that all FPA obligations are covered off. Consider managing your FPA processes with NZ’s best integrated payroll and HR solution.
About MyHR
Jason launched MyHR in 2013 with a vision to change the face of HR. MyHR is intuitive, easy-to-use, online HR software, coupled with a team of dedicated HR professionals, providing customised support to over 600 organisations who employ 10,000 people in NZ, Australia, UK and Singapore.
