Income Insurance Scheme – more trouble than it’s worth? - Legalwise Seminars

Fiona McMillan, Partner, and Abby Lohrey, Law Clerk, at Lane Neave analyse the proposed Income Insurance Scheme for New Zealanders. They ask whether this scheme will work in the way planned, or whether it may be more trouble than beneficial.

In 2021 the Labour Government proposed the launch of a new Income Insurance Scheme for New Zealanders. While the Scheme has been in the pipeline since the 2020 general election, many thought it would take the form of compulsory redundancy compensation as opposed to an insurance scheme.  Submissions on the Scheme closed on 26 April 2022 and we now await next steps from the Government.

Key features of the proposed Scheme:

• The Scheme will provide employees (and those in other working arrangements) with up to 80% of their previous income (capped at $130,911) for up to seven months following job loss due to redundancy or loss of capacity to work due to a health condition or disability;
• Where an employee is made redundant, the employer will need to give four weeks’ notice and will be required to pay 80% of their employee’s wages during the notice period.  Payments under the Scheme will then start at the end of the notice period;
• Any job loss as a result of poor performance, misconduct, serious misconduct or resignation will not qualify for the Scheme;
• ACC will be responsible for administering the scheme. It will be funded by levies placed on wages and salaries, with both workers and employees contributing 1.39%;
• The employer levy will be collected by ACC and the employee’s levy will be collected through PAYE;
• To be eligible, employees need to contribute for at least six months in the eighteen months preceding a claim; and
• To be eligible for the Scheme, claimants will need to show that they are looking for a job or retraining. The claimants under the health condition or disability category will be expected to engage in return-to-work activities where necessary.

Mixed reviews of the Scheme:

So far, there have been mixed reviews of the Scheme.  It is worth noting implementation of the Scheme would mean a reduction in income of about $800 a year for an employee on the median wage. Leader of the National Party, Christopher Luxon, has expressed concern that the Scheme could exacerbate the cost of living crisis by taking more money away from employees and employers.

On the other hand, the Labour Government and other supporters of the Scheme argue that it will benefit the wider economy by maintaining consumer spending during times of high unemployment. In their view, it would minimise the financial stress on people who have lost their jobs or their capacity to work.  In addition to this, it is argued that the Scheme would address the current inequity between those who are not able to work due to injury resulting from an accident (who can therefore access ACC) and those who are not able to work due to a health condition or disability.

Although the devil will be in the detail, the information we have to date raises more questions than answers from an employment law perspective.  As outlined above, those whose employment is terminated for poor performance, misconduct or serious misconduct are excluded from the scheme.  However, one must presume that such a scheme will result in negotiated exits on the basis of the parties agreeing that the employee was “made redundant” and the employee agreeing to not raise a personal grievance in relation to their termination.

Such a scheme may also see a decrease in personal grievances being raised following a redundancy or termination for medical incapacity.  This is because an employee may feel less aggrieved about justification for such a termination when they continue to receive their wages for a period of time.

Fiona is a Partner of the employment law team and commenced her career with Lane Neave in 2007. Fiona specialises in assisting employers with all employment law related advice including collective bargaining, independent external investigations and human rights commission matters. Fiona has built strong relationships with a number of different industries, including corporate, tourism, the bus and coach industry and manufacturing. Fiona has a hands on style of practice which involves working in a business as opposed to working alongside it. Fiona regularly presents seminars to clients, industry bodies and at conferences. You can contact Fiona on LinkedIn.

Abby is a Law Clerk at Lane Neave. She is currently completing her final year in a Bachelor of Laws and Bachelor of Sciences (Psychology) at the University of Otago. You can connect with Abby via LinkedIn.