New Zealand: Proposed new income insurance scheme

Employer Action Code: Monitor

The government, in partnership with the New Zealand Council of Trade Unions and Business New Zealand, is proposing a new income insurance scheme to provide financial assistance to employees whose jobs have been eliminated or who lose work (permanently or temporarily) due to ill health or disability. At present, there is no statutory entitlement to employer-paid severance on dismissal (collective or individual), though it may be required under a workplace agreement (if any) or provided voluntarily. Unemployment benefits from social security are, like other social security benefits, flat-rate allowances unrelated to prior earnings.

Key details

The proposal has been released for public consultation (through April 26, 2022). Key points include:

• Employees across a broad spectrum of the workforce would be partially insured against the loss of earnings in the event of the complete loss of employment due to a job elimination (e.g., redundancy, permanent layoff) or the loss of work due to ill health or disability (of 50% or more) expected to last at least four workweeks.
• The scheme would replace 80% of the claimant’s insured salary up to 130,911 New Zealand dollars per annum, for up to six months. In the case of employment termination (due to job elimination or ill health/disability), scheme payments would begin after a four-week waiting period during which benefits would be payable by the employer at the same rate (bridging payment). In the case of a work reduction of 50% or more due to ill health/disability, scheme payments would begin immediately. Scheme benefits would be reduced if the sum of scheme benefits and any income earned by the claimant exceeds the claimant’s pre-loss income. Claimants may have the option to extend support for up to 12 months for approved training and rehabilitation. Benefits would be payable by the Accident Compensation Corporation (ACC).
• The ACC would reimburse employer costs for the bridging payment, provided it and the employee were notified at least four weeks in advance of separation and the employer helped the employee find a new job during that period.
• Eligibility for benefits would require a minimum of six months of insured employment over the 18-month period prior to the claim. Statutory parental leave (paid and unpaid) periods would be included for eligibility purposes.
• Insurance premiums would be levied on both employers and employees at 1.39% (each) of covered pay.

Employer implications

Assuming a generally favorable reaction, the government has indicated it intends to introduce legislation in 2022 to enact the scheme, which could commence operating in 2023. The scheme would impose additional costs on employees and employers but would create a uniform termination benefit for most of the workforce. Some aspects of the scheme need further elaboration, e.g., would it be sufficient to help employees find a new job during the four-week waiting period in order to claim reimbursement of bridging payment costs or must the former employee obtain a new job during that period to qualify? It is also unclear how the insurance benefit would be coordinated with other social security/social welfare benefits. Employers should monitor the development of the proposal.