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Let’s talk about pay: trends and changes to wage/salary negotiations

Money, money, money. A concept that both employers and employees can probably agree is one of the most important elements of working and business, and also something that can get stuck in your head, either in a good way or a bad way (similar to an ABBA song).

Money and pay are an integral part of working. There have been various changes to New Zealand’s market, the legal landscape, and societal principles/norms in the past year. These changes have seemingly resulted in a shift in working individuals’ expectations and needs in terms of remuneration.

But what about the employers’ needs? Here are a few current principles and trends in New Zealand that employers should consider when discussing and thinking about pay with their employees.

Changes to how parties’ bargain

The cost of living has become a hot topic of discussion in the last few weeks, with Statistics New Zealand releasing that the Consumer Price Index (CPI) has increased this year by 3.3%. This means that food, transport, housing, household utilities, clothing, and other living costs have increased significantly compared to the last decade (the last time the CPI was this high was 2010).

While it has been noticeable over the past couple of years that it is getting more expensive to live, with some employers already providing salary/wage increases that reflect these changes, this CPI news has actually strengthened employees’ and unions’ bargaining position when it comes to pay.

For unions, this position is best expressed in the living wage concept – that there is a certain hourly wage that a worker needs to pay for the necessities of life and be an active citizen in the community. According to the New Zealand Living Wage Movement Aotearoa, the hourly rate is currently sitting at $22.75. Already, some organisations are agreeing to pay traditionally lower-waged occupations the “living wage” – notably E tū members working as cleaners at Auckland Council began receiving a wage that was equivalent to the living wage in April 2021. Therefore, the CPI increase strengthens advocates’ position when it comes to rationalising a living wage or an industry-wide wage increase, which in turn may mean increased pressure on employers during bargaining.

Arguably, the pressures of collective bargaining were always likely to increase for employers. The above market changes, coupled with the likely introduction of Fair Pay Agreements, may afford further bargaining power to unions.

The suggested Fair Pay Agreement policy will likely change the landscape of employment negotiations, allowing industry-wide negotiations to become the norm. Although this proposal allows for “second-tier bargaining,” where employers and unions can engage in discussions on top of industry agreements, these traditional negotiations between employers and employees will likely diminish. This will especially be true for smaller employers who may not have any direct bargaining power and will be subjected to the decisions and bargaining between bigger employers in their industries and the unions.

How should an employer respond to these bargaining pressures? Generally, it will be important for employers to be well informed about their business costs, industry practices/standards, and the reality of their employees’ living costs and experiences.

If it is an employer and employee bargaining situation (such as during a wage/salary review meeting), understanding an employee’s perspective and realities will encourage an open and honest conversation about pay. Parties can work together to find a solution that best fits the business and the employee.

It is, however, essential to remember that every organisation is different in how they respond to these pressures. Therefore, in a collective bargaining situation with a union, this should be approached with a long-term strategy in mind. When entering collective bargaining negotiations, businesses should consider their workers, industry trends, and organisational goals.

Law Changes

Employers should also be taking note of recent law changes and the impact that these have on pay discussions. A notable law change this year was the minimum wage increase to $20 an hour.

An estimated 73,000 workers in New Zealand are on the minimum wage, with these workers often falling within small businesses, the hospitality industry, and retail. While some businesses will be able to bear the costs, it has forced many to strategise and perform calculations to ensure that they can continue to operate and provide work to employees.

Once again, minimum wage may impact an employee’s bargaining strategy. For those traditionally paid above minimum wage, the increase will result in their pay decreasing in relative terms. By placing them closer in earnings to workers who may traditionally be paid lower than them, some employees may feel devalued and will therefore be looking to bargain to keep their pay in the same relative terms.

Employers need to be open to discussions about the value a worker brings to the business and consider whether the minimum wage increase has shifted the salary ranges and rates for other workers in their organisations.

Another notable change for many industries is around the Pay Equity Act, introduced in 2020 and designed to guide parties towards discussions around pay equity in New Zealand. Pay equity has already had a significant impact in some New Zealand industries. For example, in 2017, the Government announced a $2 billion pay equity settlement for care and support workers. Currently, the nurses have a claim in progress, with this claim being a significant bargaining point and contributing factor to the current unrest in the profession. In the nurse’s context, the outcome of this claim will likely result in a significant uplift of wages and backpay. Industries such as teaching are expected to follow suit based on the bargaining outcomes of the nurses.

With this in mind, employers should be forward-thinking and begin to investigate whether their own organisations are aligned with pay equity policies. This means:

  • Determining whether there are any men, women, ethnicities, and/or LGBTQ+ individuals who are doing similar jobs on different pay.
  • Analysing jobs that have similar value and worth in the organisation and determining whether those jobs are being paid differently
  • Adjust remuneration and wage ranges so all men, women, ethnicities, and LGBTQ+ are paid equally for work they perform
  • Declare that the organisation is an equal opportunities employer and signal that the organisation will pay the same range for men, women, ethnicities, and LGBTQ+ individuals.

Employers should also follow legislative guidelines and consider factors such as the history and origins of the work, social, cultural, or historical factors, whether the work performed is traditionally characterised as “women’s work,” and the nature of the work as a whole.

Pay equity is rapidly developing in some industries. However, employers need to be mindful that not all employees in certain professions will accept that the margin should be narrowed between them and other employees. This may mean that some employees will seek to maintain relativity and bargain individually with their employers to reflect this.

The benefit of keeping these issues front of mind affords employers time to prepare their organisation before entering into remuneration discussions and negotiations with employees and unions.

The pandemic and the work that people are “actually” doing

It doesn’t take a rocket scientist to see that the pandemic has changed the way we work and the traditional workforce landscape, with 2021 being different to previous years.  Traditionally, New Zealand has always had a strong workforce made up of international travellers and migrants who come to the island to travel and work. However, the pandemic and the consequential pause on international travel and migration trends have had a massive impact on New Zealand’s communities. Many sectors now see an increase in labour shortages due to these travellers no longer being allowed into the country.

Now, many businesses are struggling to find employees and are also competing with other organisations in a talent war. This is because the workers that are available to provide labour are shopping around to find the best deal. In short, this shortage has driven up the average wage for certain occupations and sectors that have otherwise been classed as attracting lower-waged employees.

Therefore, the ability to be picky for some workers has led to a shift in societal perspectives, from work that is considered low waged or less valuable to being work that is worth paying a considerable amount for. Consequently, some industries have put a premium on their work in a bid to appeal to new workers. For example, it is expected that some fruit pickers will earn a living wage of $22.10 this year in a bid to attract people.

These pain points are hard to control, which means that employers should look to be creative with how they strategise and respond to unemployment rates and shortages in their industry. This could mean providing extra benefits to employees to attract workers to the industry or planning on becoming accredited with Immigration New Zealand’s new accreditation process to ensure the organisation is ready to hire migrants when the borders open.

The world moves fast and so do trends in Employment Relations. We appreciate that these changes and issues can be difficult for employers to navigate. If you think your organisation requires assistance with developing its structure, employment relations, and/or bargaining strategies – either with unions or individual employees – or just with understanding what these changes mean for your organisation, get in touch with one of our employment relations specialists today.

Written by Madeline Wrigley, Business Partner.


This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

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