What NZ employers need to consider before implementing a living wage

New Zealand’s adult minimum wage is set to increase 2% to $23.15 an hour from April 1 this year.

The increase from the current minimum wage of $22.70 is expected to benefit between 80,000 and 145,000 employees without imposing unreasonable costs on businesses, according to Workplace Relations and Safety Minister Brooke van Veldens.

"This government is committed to striking the right balance between protecting the incomes of our lowest paid workers and maintaining labour market settings that encourage employment," the minister said earlier this year.

While the minimum wage is mandatory, employers can voluntarily opt to pay employees a living wage – an hourly rate of $26. This rate was designed to ensure “workers get enough money to live with dignity.”

“The Living Wage considers basic expenses, and gives breathing room for rest, activities, or saving for a rainy day,” Living Wage Aotearoa New Zealand said on its website. “It’s good for collective wellbeing, and our economy.”

Living wage movement

But what should employers take into consideration when approaching the living wage?

Kathryn McKinney, employment law partner at Martelli McKegg, explained that the living wage sits above the minimum wage because parts of New Zealand are expensive to live in.  

“Paying the minimum wage is just, in some people's views, not enough to give them the ability to live with dignity and out of poverty,” she told HRD New Zealand.

“And so the living wage was a movement to pay over and above the minimum wage to basically allow people to have a little bit more time that they could spend with their family and perhaps work a little bit less overtime.”

Implementing the living wage

McKinney emphasised that the living wage is voluntary.

“If you're an accredited living wage employer and you decide that you're going to pay this rate – which is higher than the minimum wage – what that means is that all your employees will be paid at least that as a minimum rate,” she said.

“But it goes further than that. What it also means is if you're going to be an accredited living wage employer, you have to discuss with your service providers and your contractors and your suppliers whether they're also paying this living wage.”

Any employer can decide to implement the living wage, but they are more likely to do it through an accreditation organisation, McKinney said.

“What comes with that is the ability to link into them and be able to be on their website as an accredited living wage employer,” she said. “The advantage of doing that is that candidates who are interested in earning the living wage can go on there and see who pays it and then go and look for jobs with those businesses. And so there's some value to being accredited.”

What employers need to consider

McKinney went on to describe what employers and HR teams should consider before implementing the living wage. And it starts with looking at your financials.

“In the same way that employers would be doing their financial budgets for the years ahead, they would definitely want to be building the additional cost of this into their calculations,” she said. “And that would include what you'd be paying for other things that are based off those calculations such as KiwiSaver. Because, overall, that might have a significant impact on the cost of your business.”

Another important point McKinney emphasised is having discussions with your suppliers and wider contractors about whether they’re implementing the living wage as well.  

“There might be people that you do business with who don't want to pay the living wage because it's difficult enough perhaps for them to pay the minimum wage,” she said.

In addition, employers should consider that once they implement living wage, it will be difficult to change back, McKinney added.

“Like the minimum wage, if you commit to the living wage it's difficult to step off,” she said. “Once you give an employee a new rate of pay, that's a contractual agreement. So any future pay rises that you give will be from that starting point. You can't go back.”

Living wage boosts to recruitment

McKinney highlighted how having the living wage could work as a positive recruitment strategy for employers.

“If you were just new to the labour market or if you were in one of those lower paying sectors, you'd be searching up who is paying the living wage,” she said.  “And your base rate would be that living wage so if you work overtime, that would be based off that base rate of pay. So it would have knock-on advantages as well; your income overall would be lifted, your KiwiSaver contributions would be lifted.”

However, McKinney acknowledged that some businesses may not be inclined to implement the living wage due to the current economic climate.

“In New Zealand, the economic climate has changed over the last 12 months quite drastically,” she said. “If you were an employer right now and you weren't paying the living wage, perhaps you'd be less minded to because the economic climate has changed and there's more pressure on businesses at the moment.”