The policy costing Kiwi workers thousands of dollars every year. Even Retirement Commission wants it banned
Saturday, 31 January 2026
A clause buried in the employment contracts of at least a quarter of New Zealand’s workforce is costing employees thousands of dollars every year.
These clauses are so damaging the Retirement Commission has called for their use to be entirely banned, saying that they undermine the intent and effectiveness of our retirement system.
The cause of this concern? Total remuneration contracts.
In such a contract, an employer’s KiwiSaver contributions are included as part of the worker’s gross salary rather than on top of the salary.
The concept is best explained through an example of two workers, each being offered a salary of $100,000.
The first worker is offered a standard contract with KiwiSaver contributions coming on top of the gross salary, whereas the second worker is offered a total remuneration contract.
The Retirement Commission explains that if the worker on a standard KiwiSaver contract agrees to contribute (3%) to KiwiSaver, they will receive compensation of $97,000 as well as $5,010 of KiwiSaver contributions ($3,000 of their own contributions and $2,010 of net employer contributions after tax is applied). This approach would cost the employer $103,000 per annum.
However, the worker being offered a total remuneration package of $100,000 will face quite a different scenario. They will receive only $94,090 as current compensation and $4,920 of KiwiSaver contributions ($2,910 of their own contributions and $2,010 of net employer contributions, paid for from their own salary, after tax is applied). This approach will cost the employer $100,000 per annum regardless of the mandated employer contributions, with all payments coming out of the worker’s pocket.
The consequence of these contracts is that workers on total remuneration packages who contribute to KiwiSaver end up with less take-home money and also end up contributing less to KiwiSaver.
Over a decade, the worker on a total remuneration contract will earn $30,000 less in gross salary.
They will also have less in their KiwiSaver, provided they decide to contribute in the first place.
A growing divide
The National-led Government is set to increase KiwiSaver contributions to 3.5% in April this year and then to 4% in 2028.
As that happens, workers on total remuneration policies will take a double hit as they cover the increase for both the employer contribution and their own contribution. The reason for this is that the overall salary paid by the employer stays the same. It’s $100,000 per annum regardless of any percentage changes. Any contributions come directly out of that pay packet.
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Meanwhile, workers on a standard KiwiSaver contract will get a comparative raise of 0.5% in April this year and a further 0.5% in 2028.
National’s plan is to push those contributions up to 6% by 2032, but this will do very little to improve the circumstances of workers on total remuneration clauses. The onus will still be on them to cover those contributions.
Under these circumstances, a $100,000 salary could look quite different depending on what type of employment contract you hold.
So how many Kiwis are on these contracts?
Research from the Retirement Commission suggests that 25% of employers always offer total remuneration clauses, while a further 20% of employers adopt both approaches.
This means nearly half of employers in New Zealand use total remuneration clauses to some degree.
Professor Claire Matthews, the head of the School of Accountancy, Economics and Finance at Massey University, tells me she is fully in support of the Retirement Commission’s ban on total remuneration clauses.
“While I understand that for a very small group of employees this might be an appropriate option, for the vast majority of people it’s not, and there are some for whom it would be a very real disadvantage,” she says.
“For many employees, there is a substantial power imbalance in the employment relationship, which means that they are not able to truly negotiate what they want, including avoiding total remuneration, and this means that, in reality, it becomes an employer decision.”
The total remuneration policy was introduced under the National-led government in 2008 on the principle that employees should be able to negotiate the terms of their employment contract.
The point Matthews makes here is that negotiating only happens for senior workers who have some leverage and are on equal footing with the employer. This does not apply to the vast majority of workers, who are often competing with many others for a limited number of jobs.
So will a ban make a difference?
Dean Anderson, the chief executive of Kernel Wealth, says a ban on total remuneration contracts does make sense, but adds that nuance is important in the discussion.
“These were originally justified as a way to give employers flexibility and help simple cash flow management, but they've become a bit of a blunt instrument,” he says.
Because most businesses operate on set salary budgets, Anderson questions whether a ban will make a tangible difference to the workers impacted by these contracts.
“Removing them won't meaningfully shift market rates,” says Anderson.
“It will likely result in more of a reshuffling than a reset, especially in this current economic environment… When businesses say they can absorb the cost, I'd push back gently: sure, they can, but the question is whether they will, and whether the policy actually helps the people it's meant to protect.”
Anderson is alluding here to the possibility that a ban will lead to businesses reassessing their budgets and determining what they can do to retain their profitability. Even if businesses are in a position to absorb the increased cost, there’s every possibility that they will be looking to make cuts elsewhere to keep their profitability higher.
Can a lawyer help you?
An employment contract is essentially a meeting of the minds between an employer and an employee. The terms included are incredibly specific to ensure there is no disconnect between what each want from the arrangement.
Employment law specialist Catherine Stewart says that if there is a total remuneration clause in an employment contract, it can only be changed by mutual agreement between the employer and employee.
In other words, you would need to approach your employer and negotiate a change to the employment terms. If the employer says no, then there is very little recourse for further action.
However, there is an exception, according to Stewart.
“If the employee is a minimum wage worker, then a ‘total remuneration clause’ is likely to be unenforceable even if it is in the agreement,” she says.
“This is because the Minimum Wage Act provides that employees are entitled to receive the minimum wage rate, notwithstanding anything to the contrary in any agreement. In other words, if you employ staff on the minimum wage and pay KiwiSaver on a total remuneration basis, you will need to either reverse that arrangement or increase the wage rate by the amount of the KiwiSaver percentage.”
Stewart says the Court of Appeal confirmed this in a key decision and that employers and employees need to be cognisant of how this applies to them.
Stewart’s advice for anyone signing a new employment contract is to pay special attention to whether a total remuneration approach is being used. It’s always easier to negotiate prior to signing on the dotted line.
“Once such a clause has been included in the agreement, it is almost impossible to overturn it unless the employer agrees to the change,” she says.
“This highlights the importance of an employee raising it as part of the pre-employment negotiations if they prefer not to have such a clause in the agreement.”