(Source: Future of Work Tripartite Forum, “A New Zealand Income Insurance Scheme – A Discussion Document,” February 2022, at 76).
Notably, the first four weeks’ payout is to be funded by a “bridging payment” by the employer equal to 80% of the employee’s pay in the case of redundancy. This will be in addition to any redundancy compensation provided for in the employment contract. To this end, it is proposed that employers would need to give four weeks’ notice to the employee and the insurer before the redundancy is to take effect. A portion of the payout may be refunded to the employer if the employer helps the worker to find work within the initial period of unemployment.
The scheme will cover a broad selection of working arrangements. This includes part-time employees, some casual and fixed-term employees, seasonal workers, and self-employed people who most resemble employees. Feedback on this aspect is sought, especially on the issue of self-employed workers.
It is proposed that insurance payments to a worker under the scheme will constitute income for the purposes of Working for Families Tax Credits (WFFTC) and student loans. This means that any payout a person receives after the loss of employment may impact their eligibility and entitlement for WFFTC and student allowances. In addition, insurance payments may be subject to student loan repayment deductions.
Officials have not commented expressly on whether insurance payouts under the scheme will be subject to income tax. Still, if ACC weekly compensation is anything to go by, the payments may be subject to some form of withholding, such as pay-as-you-earn (PAYE).
The discussion document also seeks feedback on the interaction between payouts under the scheme and other Government payments that a person may receive, such as New Zealand superannuation, ACC weekly compensation, and paid parental leave. The preferred approach is to allow insurance payments to be made alongside superannuation payments. However, it is proposed that insurance payments should not be allowed at the same time as paid parental leave but could be made sequentially. As for ACC weekly compensation, a person could access both with some practical constraints that would mean that the person would not be better off financially than their pre-injury and displacement position.
There is a lot of detail to absorb in the discussion document. From an employer’s perspective, an important consideration will be increased costs in the form of the 1.39% levy as well as the required bridging payments for redundancy. Undoubtedly, compliance costs will also be involved with the requirement to comply with another levy regime.
