The New Zealand Government is currently proposing a compulsory income insurance scheme for all workers in New Zealand. If this is established, the scheme will provide workers with 80% of their income for a total of up to seven months if their employment ends by reason of redundancy or incapacity.
In short, the scheme aims to provide some extra economic security for workers who lose their employment through no fault of their own.
How would this be funded?
The costs of the scheme would be funded by levies to be paid by workers and employers. It would be funded in a similar manner as the current ACC system. It is estimated that both employers and workers would have to pay levies equivalent to 1.39% of their wages.
This is an estimate only and would need to be reviewed. This may be adjusted from time to time, depending on the number of claims, and how long people receive financial support.
What does it cover?
The scheme is intended to be compulsory and would apply to most workers in New Zealand.
To be eligible for support under the scheme, a recipient would need to have worked or been on statutory parental leave for at least six months in the past 18 months. There are other criteria to be eligible for payments under the scheme.
To qualify for income support, the job must cease. If a restructure results in a reduction in hours, the scheme is not intended to cover this.
Fixed-term and seasonal workers are eligible if they lose their job before it was due to finish. For example, if they are made redundant five months before the fixed term was due to end, they could receive support for a maximum of five months.
Casual workers who can show a regular pattern of work with an employer and a reasonable expectation of future income, would be treated like permanent workers and be eligible for support, if their regular pattern of work is disrupted.
People working multiple jobs would be eligible if they lose a job that provides more than 20% of their income. Any payments under the scheme would top up these workers to 80% of the recipient’s previous income.
In general, the scheme aims to cover workers who have a pattern of regular ongoing work, while excluding or limiting coverage for those who have greater control over when and how they work.
It is proposed that most workers would be covered for health-related job losses (such as cancer), including part-time, fixed-term, seasonal and many casual employees, as well as contractors and self-employed workers.
It is recognised that contractors and self-employed workers are a diverse group. MBIE is soliciting feedback on how the scheme could apply to them. It appears that the scheme is intended to provide support to self-employed workers whose work arrangements resemble those of employees, and who genuinely lose work for reasons beyond their control.
Under the scheme, the health condition or disability must be expected to last for at least four weeks. However, employers could still be required to make reasonable efforts to hold the position open if the worker is likely to recover within a reasonable period.
To be eligible, it is intended that the recipient’s job must cease entirely, or there must be a reduction in their capacity to work by at least 50%. If they can remain in part-time work with the employer, the scheme is intended to provide a top-up to 80% of their usual salary.
How much would be provided?
Under the scheme, a recipient would receive 80% of their usual salary from ACC (or the applicable agency) – capped at a salary of $130,911 a year – for up to six months if they lose their job.
If the recipient lost their only job, they would receive the full 80%. However, if they have other jobs, their income would be topped up to 80% of what they were earning across all their jobs.
A recipient can only receive six months of insurance payments every 18 months. This can be spread over multiple claims (using any unused financial support). The 18 months begins from the first claim.
Payments under the scheme are not affected by the recipient’s assets or wealth, other sources of income, or the ongoing income received by the recipient’s family members
To avoid doubt, the scheme is not intended to cover workers when they are dismissed for poor performance, misconduct or if they resign. However, the scheme could potentially be abused, particularly in cases where there are mixed motives for the termination.
Required notice and payment by the employer
When employment is terminated by reason of redundancy or health incapacity, the employee would receive four weeks’ notice, and the employer must continue to pay wages for four weeks at 80% when the job ends – after which the income insurance payments would begin.
It is proposed that such payments would be in addition to any other agreed redundancy provisions in the employment agreement.
Further, if the business fails and cannot pay, it is intended that the scheme would cover the required payment and seek to recover this from the liquidators.
Support for getting back to work
Under the scheme, recipients would be required to look for work, or take part in training and rehabilitation.
The scheme would come with a case management service to support efforts in returning to work. Recipients’ needs are likely to vary significantly. Some people may not need support, while others may benefit from more active support. It is intended that case managers would develop tailored return-to-work plans.
Further, there would be an obligation to accept any job offer that matches their previous income and other conditions. This obligation may not apply if their health condition or disability limits what they can do, or if they are in an approved training or rehabilitation programme to help support a return to work.
If there is a pattern of non-compliance, the recipient could be given notice and time to meet their obligations. If they fail to do so, the insurance payments may be stopped.
Recipients may undertake occasional or part-time work while they receive payments under the scheme. They may earn up to 20% of their previous income without the insurance payments being affected. However, any earnings above 20% would reduce their insurance payments by $1 for every $1 they earn.
Under the scheme, support services are intended to vary for people who need help for health or disability reasons. Some people may take longer to return to work, and they may need more structured and intensive support.
Lastly, under the scheme, the recipient would need to remain in New Zealand while receiving payments, with some limited exceptions.
Social welfare system not affected
When the scheme ends, if the recipient remains unemployed, they may apply for other forms of social welfare, if applicable.
Insurance payments under the scheme would be considered as income. They will be taxed and will be included in determining whether a recipient is eligible for other welfare support, such as Working for Families, Accommodation Supplement or Student Allowance.
Like the current ACC system, the scheme is intended to have an independent dispute resolution process.
For more information on the proposed scheme – please go to – www.mbie.govt.nz/have-your-say/income-insurance/
There is a summary of the proposal and a brief survey – for those who wish to provide their input. To provide a detailed submission, there is a submission form at the above link.
Submissions may be emailed to email@example.com
The period for submissions will close on 26 April 2022.
If the Government proceeds to introduce legislation for an income insurance scheme, the public would have a further opportunity to provide their input on the draft Bill to the Parliamentary select committee at the time.
Please contact us if you wish to seek advice on how the proposal could affect your business, or if you wish to seek assistance in preparing your submissions.