It’s now going to be easier to sack high-earning staff that are not performing; or eliminate the need to consult with them when looking at redundancies.
The original Employment Relations Amendment Bill (ERAB) proposed that there was a salary threshold of $180K; at which point people could not legally challenge a dismissal or termination of employment.
The select committee deemed that the proposed salary of $180Kpa was too low, and so it was increased to $200K. There was also debate on what should or should not be included in that figure, especially as higher earners sometimes earn bonuses and commissions.
The next review of the specified remuneration threshold will be after 1 July 2027.
But what does this new law mean in practice?
Basically, you don’t have to follow the principles of good faith when dismissing someone who meets or exceeds the specified remuneration threshold, of annual remuneration.
In fact, it seems you don’t really have to treat them fairly at all, because they also can’t raise a personal grievance for unjustified disadvantage. Yikes!
This could mean –
- dismissal with notice for any reason at all, by just providing the required notice period
- not following a fair process if there are allegations of misconduct, serious misconduct, ongoing poor performance or something else (eg a complaint of sexual harassment)
- redundancy without consultation
- demotion or other changes to terms and conditions of employment without consultation.
A new s67I tells you how to calculate annual remuneration. There’s also another clause that says that annual remuneration includes a PAYE income payment (defined by section RD3(1) of the Income Tax Act 2007), and excludes any ACC payments or share scheme benefits. So – KiwiSaver employer contributions are excluded because they have ESCT deducted, not PAYE.
The known-knowns
We know that anything that had PAYE deducted from it is included. That’s nice and tidy. We can also see through the calculation for annual remuneration that it covers people who have worked for less than 12 months.
The known-unknowns
How many employers will actually implement this? Normally what’s in employment law creates ‘implied terms’ in an employment agreement. This means that the employment agreement doesn’t specifically need to say that the employee could be sacked if they’re on a remuneration package of $200K or more. However, the ERAB allows for employees to negotiate to exclude this from their employment agreement. And this one is weird: current law says that a personal grievance is the only way to challenge a dismissal. The ERAB also allows this clause to be negotiated out. Also, what is incredibly murky are the bits about how long a person has held a position for … so watch this space and hope that it’s not you that gets the chance to test this at the Employment Relations Authority.
12-month transition for high-earners and understanding the impact of role changes
If you need to dismiss a high-earning staff member who has been with you since before the law changed (or was recently moved via restructure), you have a one-year window where you can’t summarily dismiss them for any old reason.
Also –
This “pause” on the new rules only applies to employees who:
- meets or exceeds the “Specified Remuneration Threshold” (currently $200,000); AND
- stay with the same employer they had before the law changed.
It covers these employees even if their role changes due to a restructuring, whether they stay with the same company or move to a related one.
How the grace period works
For these specific employees, the new rules in Section 67I do not apply for a set amount of time. This grace period ends at whichever of these two things happens first:
- the 12-month anniversary of the law’s commencement date; OR
- the moment they stop holding that specific position (unless the change was due to restructuring).
The "opt-in" exception
Even though the law grants this 12-month exemption, it isn’t set in stone. An employer and employee can mutually agree in writing to waive this grace period and have Section 67I apply immediately. As if anyone would agree to that!
Key takeaway
If your high-earning staff stay in their current roles (or are moved via restructure), you generally have one year before Section 67I kicks in for them. This gives you a buffer to review their contracts and ensure everything is compliant without rushing.
What you need to do now
If you don’t have any staff on anything like this salary, then there’s nothing to do. But if you have some who are on the salary, or who could go over the threshold at their next pay review, get advice because the law will automatically apply unless you contract out … but you’ve still got to get it right.
If you regularly employ people on salaries of $200K or more, you should review the contents of your employment agreement template for future hires, and be prepared for higher earners to opt out of this. We can help with that, contact us for help.
We can also help with your overall HR compliance and walk you through performance management if you’re working through performance issues of any employee, regardless of what they’re being paid.
This is not a substitute for legal advice. We always recommend getting advice from us or from a legal practitioner specialising in employment law if you are considering dismissal.
