Payroll & Finance
R&R Fund – An Alternative Approach to Employee Benefits
January 2, 2017
On top of the standard hourly rate there are many additional benefits that an employee receives such as Public Holidays, Annual Leave, Sick Leave and KiwiSaver Contributions. Each of these benefits has different and in some cases complicated rules for determining if they are paid and at what rate.
Some employees may receive more benefits than others, not because they are better workers, but simply because they decide to take advantage of the benefit e.g. employees choosing to pay into KiwiSaver receive an additional 3% minimum contribution from the employer. Those who choose not to enrol in the KiwiSaver scheme are disadvantaged over their KiwiSaver workmates by 3% less pay. The same can be said for Sick Leave, some workers use all 5 days leave per year whereas others don’t use any at all.
With the different types of leave the hourly rate an employee is paid is in some cases difficult to calculate with rules such as higher of the average or ordinary weekly rate, the relevant daily pay, etc. Often the complexity leads to employers making mistakes and the employee not understanding what their entitlements are. A great example of this is the Ministry of Business, Innovation and Employment incorrectly paying annual leave to employees for many years before either party identified the errors.
A possible solution to these problems of complexity and unfairness would be to have a fund for each employee that combines all the on-top benefits that employees receive for rest, recuperation, retirement and redundancy – let’s call it the R&R Fund. For each dollar of wages an employee receives an amount is put aside into the R&R Fund, let’s say 20 cents. The employee can use the money in this fund to pay to their KiwiSaver fund as the employer contribution, or they can take a day off for whatever reason and be paid a day’s pay from the fund.
When the employee decides to leave the company or is made redundant all the money left in the fund is paid out, including the money that may have otherwise been kept by the employer for unused Sick Leave or KiwiSaver employer contributions if the employee was not enrolled in KiwiSaver.
How much is currently paid by employers for these additional benefits? Well Annual Leave is either paid as Holiday Pay at 8% or as Annual Leave is approximately 4/52 or 7.7%. Public holidays are 11 days a year or 4.2%. Sick Leave if all used is 1.9%. The minimum KiwiSaver employer contribution is currently 3%. So in total these extra benefits amount to 17.1%. In some cases the amount paid is higher than the amount when it was accrued e.g. 7.7% Annual Leave may not be 7.7% of the amount paid to the employee over the last 12 months – this is the case where an employee has worked more or at higher overtime rates in the last 4 weeks. So to compensate for these fluctuations we could increase the fund allocation amount to say 20%.
Could this be implemented now? Probably not, however the law around these kind of employee benefits say that the entitlements are a minimum requirement and that the employee and employer can agree to increased entitlements. It may be argued that the combined R&R Fund accumulated at 20% is an increase in each individual entitlement. It would certainly be a lot easier to implement and for employees to understand than the current system which is a mixture of confusing rules and regulations.