New Zealand Income Protection Scheme

New Zealand Income Protection Scheme

When the COVID-19 pandemic struck, the government stepped in as the defender of jobs with the wage subsidy scheme. Since then, Business New Zealand and other union groups have approached the government for better protections for job losses that occur outside of crisis years — protections which are common elsewhere in the world but missing in Australia and New Zealand.

Details we know so far

The Income Insurance Scheme (Enabling Development) Act 2022 was enacted this year to allow ACC (the Accident Compensation Corporation) to development a New Zealand income protection scheme that would provide income security to individuals who lose their job through ‘no fault’ redundancy or health/disability-related reasons.

The scheme is to be managed by ACC and administered in a similar way to current ACC payments. The scheme provides terminated employees with up to 7 months of financial support at 80% of their pay with a further 6-month extension of support available for employees wishing to retrain. This applies up to a maximum earnings cap of $130,911.

The goal of the scheme is to provide a financial cushion for terminated employees to allow them to search for a well-paying job within their skillset. It aims to prevent people from accepting low-skilled jobs out of their field because of the financial pressure to get back to work quickly.

Almost all types of employees are eligible — full-time, part-time, fixed-term, and even casual employees where there was a reasonable expectation of future work. This is provided the employee has contributed to the scheme for at least 6 months within the previous 18 months before making the claim and is a New Zealand citizen or resident. Claims are restricted to no-fault-based redundancies situations meaning an employee is not eligible if, for example, they are justifiably dismissed for poor performance.

Throughout the process, a case manager is assigned to the dismissed employee and will assess whether an employee is actively looking for employment and accepting suitable offers. Throughout the employee search, they are allowed to supplement their income from the scheme with other work — provided that this other income does not exceed 20% of their previous wage/salary (after 20% the insurance payments are reduced dollar for dollar.)

Impact on Employers and Employees

The scheme is proposed to be funded through levies on both employers and employees – a deduction will be made from the wages of employees, initially at an estimated 1.39%. This will be a polarising issue for the Bill – particularly in these tough economic times, some employee’s will be reluctant to have their wages ‘cut’ to pay for a scheme that they will more likely than not never utilise.

Employer’s will also contribute to the scheme however, matching employee contributions and contributing in other ways, such as increasing employees’ notice periods for redundancy or medical incapacity to a minimum of four weeks and providing an additional four weeks of bridging payments to employees at 80% of their salary.

In essence, this scheme increases the cost of redundancy or other no fault exit on a firm and will influence a business’s decision to make an employee redundant or consider alternatives to redundancy.

 

If you would like to discuss your situation further, please get in touch with the Watermark team directly. We are happy to advise you.

Jonathan Charlton (Senior Solicitor/Practice Manager) and Isaac Proctor (Law Clerk)