New Zealand Fair Pay Agreements: What employers need to know

They’ve been controversial from the outset and their future is not assured following the change of government, but Fair Pay Agreements have been branded as the one of the most significant changes to New Zealand employment law in 30 years and – for now at least – employers across multiple industries and more than 200,000 workers will be impacted. What is a Fair Pay Agreement and how can employers prepare?

What is the Fair Pay Agreement system?

A Fair Pay Agreement (FPA) is essentially a form of industry-wide collective employment agreement. They will sit above, and work alongside, individual and other collective agreements to create a minimum floor of rights for all employees in a particular occupation or industry, regardless of whether they are union members or not.

Borrowing elements from Australia’s Modern Awards, New Zealand’s FPA system brings unions and employer associations in a specific industry or occupation together to bargain not just for base wage rates, but also areas such as:

• Ordinary hours

• Overtime

• Penalty rates

Other topics may also be discussed, though not necessarily agreed, including:

• Redundancy

• Leave

• Health and safety

• Flexible work arrangements

• Training and development

When an FPA comes into effect it must be better than, or the same as, relevant minimum entitlements. However, if the law changes a minimum entitlement so it’s better than an FPA term, then the new minimum entitlement applies.

To initiate the process, employees can apply to the Ministry of Business, Innovation and Employment (MBIE) to commence bargaining with employers if at least 10% of their workforce, or 1000 staff, agree to it. However, if no one wants an agreement at all, the MBIE can decide to initiate one anyway, if they think it is in the public interest.

Responsibility for reviewing and approving an FPA application rests with the MBIE. Following approval, bargaining takes place between the relevant parties. Once agreement is reached, the FPA will be vetted and approved by the Employment Relations Authority and – if successful – implemented and enforced by the MBIE.

The agreements will last between three and five years, after which they will need to be renegotiated.

For comprehensive guides and tips on navigating the FPA system, refer to the Employment New Zealand website.

When is it happening?

For certain industries, the process has already started; for others, it’s in the earliest stages. The Fair Pay Agreements Bill passed into law on 1 November 2022, and applications to initiate bargaining began from 1 December 2022. As at October 2023, certain industries and occupations have already commenced negotiations, or will undertake negotiations in coming months, including bus drivers, security officers and guards, commercial cleaners, early childhood education workers, and workers in hospitality and grocery supermarkets. It’s anticipated that the bargaining process for each agreement will take several months.

However, given the change in government, the future of the FPA system is uncertain. The National Party has vowed to repeal the law, although constitutional law experts have warned that any changes or repeals will likely take time to action, and employers must comply with the law as it currently stands for the foreseeable future.

What does the Fair Pay Agreement system mean for employers, employees and payroll providers?
Law firm DLA Piper suggests the underlying FPA legislation is complex, technical and difficult to interpret. What is clear at this point is that FPAs have the potential to significantly impact employers, employees, and payroll providers.

For employees, especially those in low paid positions, the FPA system is intended to provide greater bargaining power, which could lead to better pay and conditions – and eventually higher living standards.

For employers that either outsource their payroll operations or handle operations in-house, it is imperative that the software solution used is compliant once changes are introduced. Payroll software may need to cover multiple FPAs for each employer and there will likely be not only wage rate changes required, but changes to leave allowances and overtime rates.

For employers, the compliance burden is likely to increase. Although there’s broad acknowledgment that FPAs are well intentioned as they will improve the livelihoods of New Zealand’s most vulnerable workers, critics have claimedthe complexity and added costs for employers will not be offset by increased workplace productivity.

The MBIE has recommended that the following steps be taken by employers at each stage of the FPA process:

1.     Union applies or is approved

Once a union has applied to the Ministry of Business, Innovation and Employment to start negotiations for a Fair Pay Agreement, or has been approved to start, you as an employer have to communicate with your employees and unions.

• If notified that an application to initiate bargaining for a FPA has been approved, you need to inform all other unions your covered employees are members of

• You need to directly pass on a statement to covered employees which will be provided by the initiating union, which includes the name of the initiating union and how to contact them

• Provide an opt out form to employees, collect the form, and keep a record

• Provide contact details of employees who have not opted out to the initiating union

2.     Bargaining begins

When bargaining begins, employees are represented at the bargaining table.

 As an employer, you have to:

• Pass on information to employees from the employee bargaining side throughout the bargaining process

• Allow your employees to attend 2 x 2 hour paid meetings arranged by the employee bargaining side

• Allow a representative from an employee bargaining side access to the workplace

• Notify the initiating union if any employee wants to opt out or opt in at any time, and provide updated contact details for the employee bargaining side

3.     Voting

Once the bargaining sides agree on the terms of a FPA, your eligible employees may vote on the terms of the FPA. 

This includes employees that may have opted out of receiving information about the proposed FPA earlier.

4.     Fair Pay Agreement in place

Once a FPA is finalised and made into law it applies to all covered employees and covered employers.

All employers covered under the FPA must make sure the employment agreements of all their covered employees have terms that are the same as or better than those in the FPA.

How Humanforce can help

Humanforce is committed to ensuring our customers are paying their frontline workers accurately, every time. Our powerful Compliance & Pay Entitlement Engine has been specifically designed to show you what an employee’s pay entitlements are for their shift, before you’ve even published the roster. It is already used by countless New Zealand businesses to interpret Employment Agreement rules and can be configured to include payment conditions such as wage rates, leave allowances, overtime and more, as will be outlined in any Fair Pay Agreement(s). Automated notifications and reminders for when the renegotiation process needs to start can also be set up to help ensure ongoing compliance.

Customers can sync the Humanforce Compliance & Pay Entitlement Engine to Humanforce Payroll and fast-track wage calculations and checks, helping to ensure accurate and timely pay, or use an API to integrate with existing payroll software.

About Humanforce

Humanforce is the best-in-one platform for frontline and flexible workforces, offering a truly employee centred, intelligent and compliant human capital management (HCM) suite – without compromise. Founded in 2002, Humanforce has a 2300+ customer base and over half a million users worldwide. Today, we have offices across New Zealand, Australia, and the UK.

Our vision is to make work easier and life better by focusing on the needs and fulfilment of frontline workers, and the efficiency and optimisation of businesses.

Contact us for more information about how Humanforce can automate and simplify all aspects of people management in your organisation.

Disclaimer: This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.