Upcoming Employee Cost Changes in the Retail Sector

There are three big changes to employee costs to be aware of this year. Minimum wage is set to increase again, some public holidays will be Mondayised this year, and the government has proposed an increase to sick leave entitlements. All of these changes will have an impact on employee costs across the retail sector in New Zealand. Here is what you need to know.
 

Minimum Wage Increase

On 1 April 2021, the minimum wage is set to increase to $20.00 per hour from $18.90, an increase of $1.10 per hour (5.82%) with Employer KiwiSaver contributions increasing proportionately.

At the same time, those on starting out and training wages will also see a boost in pay to $16 per hour. This rate remains at 80% of the adult minimum wage.

For more information on the minimum wage and starting out or training wages refer to the Employment New Zealand website.
 

Financial impact of the minimum wage increase

It is important to understand the full impact of the minimum wage increase, including how the increase will impact holiday pay calculations and the associated increases in ACC, KiwiSaver, holiday pay and other entitlements.

Annual leave balances should be monitored and managed so as to not become large. Businesses should have a policy in place on what is a reasonable number of days accrued per person before it requires active management.

Here is an example of financial impact:

Minimum increase in cost of leave for an employee who has 20 annual leave days with minimum wage increase (calculated at ordinary weekly pay):

It should be noted that using leave is important for Health & Safety management too. It contributes to avoiding burnout and can help reduce stress.
 

What is your plan for managing leave balances to minimise the impact before 1 April?
 

Key considerations

The minimum wage increase is a good reminder to review your requirements regarding the optimal level of staff for your business. It is also a good time to update your business plan and strategy.

Below are some prompts to consider before 1 April and to help you plan:

• Will your payroll system automatically update minimum wage on 1 April?
• Have you considered a cloud-based payroll solution, given the administrative efficiencies that can flow from an online system?
• Have you calculated the financial impact the increase will have?
• Have you updated your budget?
• Have you reviewed pay rates for those more skilled employees?
• Have you reviewed your customer pricing strategy?

If you require any assistance on any of the above, don’t hesitate to contact your local BDO team of strategic business advisers.
 

Mondayisation of Public Holidays

Many retails businesses operate 7 days a week, so it is important to note that this year there are a few public holidays that have been Mondayised. Mondayisation of Public Holidays occurs when holidays are attached to a calendar date rather than a day of the week. When the public holiday falls on a Saturday or Sunday, it is recognised on the calendar date as well as the following Monday (in some cases Tuesday). This will result in a greater expense and leave liability for your business.

Upcoming holidays that will be Mondayised in 2021:

• Waitangi Day (Saturday 6 February, Mondayised on 8 February)
• ANZAC Day (Sunday 25 April, Mondayised on 26 April)
• Christmas Day (Saturday 25 December, Mondayised on 27 December)
• Boxing Day (Sunday 26 December, Mondayised to Tuesday 28 December)
   

Sick Leave Entitlement Increase

The Government has introduced the Holidays (Increasing Sick Leave) Amendment Bill to increase minimum employee sick leave entitlement from 5 days per year to 10 days per year. If the bill is passed into law the effects will come into place 2 months from the date it passes.

Proposed changes:

• Every employee would be entitled to 10 days sick leave each year (provided they qualify based on the existing conditions), regardless of their working pattern
• Employees will receive the increased entitlement on their next sick leave entitlement date after the law commences (rather than all employees receiving the additional sick leave on the same day)
• Maximum amount of unused sick leave that an employee can be entitled to under the Act will remain 20 days
   

Formalising actions to the above

With these three changes to employee costs adding to financial pressures already felt by small business, it is more important than ever to have a business plan in place.

Check out our latest Retail Thrive Guide for more insights on business planning, strategy, and risk minimisation, or get in touch with our team today for further information or assistance.