Proposed Income Insurance Schemes
Posted: 25 May 2022
Every year, more than 100,000 workers in New Zealand are laid off or lose their jobs through no fault of their own. In February, the government proposed a new compulsory insurance scheme for all employees. This would provide most Kiwis with 80% of their regular salary for a minimum of seven months if they lose work through no fault of their own (including a health condition or redundancy).
Why introduce such a scheme?
Mass and dramatic redundancy of workforces has been experienced in New Zealand during the 2007–09 global financial crisis, the Christchurch earthquakes in 2010–11 and the current Covid pandemic. These events cause significant economic stress on employees and their families while also impacting the broader community as there is decreased consumer spending. The government claims the scheme will also help close the income gap and make income support available to people who cannot work due to non-accident-related health conditions.
What would it entail?
The proposed scheme would provide coverage for total loss of work due to redundancy or health conditions (including disability). It will not cover an employee’s reduced hours, reduction from full-time to part-time hours, or unemployment due to a dismissal or resignation.
How much coverage?
To comply with this scheme, employers would have to give a statutory four weeks’ paid notice of termination to their employee. In circumstances where an employer is unable to make that payment, the scheme would pay it and seek reimbursement from the employer’s liquidator.
Employees would then receive 80% of their usual salary for up to a further six months paid by the government. Payments would be capped at an annualised salary of $130,911. In some circumstances, the support could be increased to 12 months if the recipient is using the time to retrain or undertake medically required rehabilitation.
To continue to receive the coverage, each recipient would need to prove they are continuing to look for new work, are taking part in training/further education, are medically unfit for work or undertaking medical rehabilitation.
Who will be eligible?
To be eligible for the proposed insurance coverage, an employee would need to have contributed to the scheme for at least six months in the immediately preceding 18 months. An exemption is proposed for someone who does not meet the contribution timeframe if they have been on statutory parental leave.
Fixed-term and seasonal workers on short-term contracts would only be eligible to receive coverage until the end of their contracted period, ie: if someone lost their job two months before the contracted end date, the scheme will only cover the two-month period of lost work. However, any fixed-term or casual worker who could show a regular pattern of work with an employer and have a reasonable expectation of ongoing employment will be eligible for full support.
The government is yet to issue a position on how the scheme would treat the self-employed or contractors. It is possible this will be dealt with on a case-by-case basis to determine eligibility and ensure work is not being rejected just to gain access to the scheme.
Paying for it
Nothing comes for free. It is proposed that the Income Insurance Scheme will be administered by ACC and, as such, will be funded in a very similar way by levies. The government estimates that it will require a 1.39% per annum levy from both employers and employees to successfully fund the scheme (resulting in a total levy of 2.78% per annum of the employee’s gross annual salary). The levy would be reviewed after two years and, if insufficient to cover the number of people it is supporting, could be raised.
Do I need to make changes to my business?
If the scheme goes ahead, it could become operational in 2024. Until there is a known date and more detail, however, businesses need not take any specific steps to prepare. In the meantime, you should review your own personal insurance or any insurance you offer to your staff.
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