Commercial & Business, Employment & Health and Safety, Insights, Law Changes

Consultation Open for Proposed Income Insurance Scheme

In February this year, the Government, supported by Business New Zealand and the Council of Trade Unions, proposed the introduction of an income insurance scheme. The scheme will come at a significant cost to both employers and employees, and there are a number of potential consequences it may have for the nature of employment in New Zealand. Consultation on the scheme is now open, meaning you can have your say before 26 April 2022. Here we outline the basics of the scheme and some of its potential ramifications to give you an idea of how it may affect you.

The scheme aims to provide eligible workers with up to 80 percent of their salary in situations where they are laid off, made redundant, or have a health condition or disability that means they must reduce their hours or stop working entirely. The scheme does not cover situations of job loss due to poor performance, gross misconduct, or resignation.

An employer is required to:

  • give an employee four weeks’ notice;
  • pay the first four weeks of compensation; and
  • make reasonable efforts to hold open a position for a medically incapacitated worker if they are likely to return within six months.

Compensation paid under the scheme will be paid on top of any contractual redundancy compensation.

To be eligible for the scheme, a worker must have worked and contributed to the scheme or been on statutory parental leave for at least 6 months over an 18-month period. The scheme may allow for some workers to claim 80 percent of their salary for up to a year long period if the worker is undertaking “appropriate training or vocational rehabilitation programmes”.

The scheme is funded by an insurance levy on wages and salary, with employers and employees paying an estimated 1.39 percent each.

There are some potential risks with the scheme that have been raised. Where there is an employment dispute, an employee could pressure their employer to disguise the termination of their employment as a redundancy rather than a dismissal or performance issue, obliging the employer to pay compensation.

In addition, there is no consideration for employees that are already covered by income insurance or contractual redundancy compensation. There would also be no litigation bar, so employees could still raise personal grievances.

The scheme may also affect the labour market. People may be more selective when job hunting, as they would have less pressure to secure a new source of income. This may change the way that employers recruit employees.

Legislation will be introduced this year and the scheme will commence in 2023. See the released discussion document for more details.