Fair Pay Agreements – What do you need to know?

The Fair Pay Agreements Act 2022 will take effect on 1 December 2022. With sector based bargaining processes about to get underway, boards need to understand how the new regime may impact their organisation.

By Susan Cuthbert, Principal Advisor – Governance Leadership Centre, IoD
24 Nov 2022
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3 min to read
Ball bearings on each end of a balancing seesaw

The Fair Pay Agreements Act (the Act) has been passed and will take effect on 1 December 2022.

The legislation could be seen as one of the most significant changes to New Zealand’s employment relations landscape in over three decades and could have far reaching changes to your organisation, particularly if you are a small to medium-sized business.

What is the Fair Pay Agreement framework?

The Act provides a framework for collective bargaining for fair pay agreements (FPA) across entire industries or occupations, rather than just between unions and particular employers. Employer associations will participate in the bargaining process with unions on behalf of employers.

Fair Pay Agreements will cover such terms as wages, work breaks, holidays, pay increase pathways, secure hours, processes for dealing with bullying and sexual harassment, health and safety, resolution processes, staffing levels, penalty rates, meal allowances and more.

A union has to gather support for a FPA to initiate a bargaining process. If the bargaining sides agree on a set of working conditions, and the terms receive ratification through a majority vote on both sides, the FPA will be finalised and set as law. The employment terms will apply to all covered employees and covered employers within that industry or occupation.

All employers covered under the FPA must make sure the employment agreements of all their covered employees have terms that are the same as or better than those in the FPA.

Employment New Zealand has development a quick guide for employers that explains the Fair Pay Agreement process.

What does this mean for organisations?

For many organisations, particularly small to medium-sized businesses, the new regime will mean becoming involved in the industrial relations process for the first time. Even if your organisation’s employees don’t belong to a union, the terms of a new sector based FPA will apply.

Some practical impacts on the organisation may include unions seeking access to the workplace to talk to the employees, the work place culture could be affected (positively and/or negatively) and there could be financial implications due to compliance costs and direct employee costs.

Cleaners, security guards, retail workers and bus drivers are expected to be among the first sectors to initiate negotiations with employers. Some of the unions have started to gather support and it’s estimated that the process could take a year for a FPA to be finalised.

Both BusinessNZ and the Employers and Manufacturer’s Association will be providing support to their members who will be affected. The default negotiator for employers is the Employment Relations Authority.

The role of the board

Boards need to understand how the new regime applies to their organisation.

As a director it will be critical to ask management:

  • What does FPA bargaining look like for the sector/s that your organisation is involved with?
  • Will representatives from your organisation be directly involved in the bargaining process on behalf of a sector?
  • Which other stakeholders will be involved in the bargaining process and how will confidential information be managed?
  • How does management intend approaching the issue with staff?
  • What could be the likely range of pay rates in the FPA, how different is this from the organisation’s current ranges and how is this likely to financially impact the organisation?
  • Are there any other risks that could possibly arise during the bargaining process or once an FPA is applied?
  • How will the new FPA framework affect the organisation’s Employee Value Proposition and how will this be reflected in the organisation’s strategy?

Creating a fair environment

Fair Pay Agreements fit within a broader responsibility that directors have to ensure your organisation’s work practices create a fair environment.

Unethical and unsustainable practices within the workplace can hurt the organisation’s reputation and social licence to operate, as well as your reputation as a director.

Employment New Zealand has issued a guide for directors that helps directors understand ethical and sustainable work practices from a labour and human rights perspective, as well as some useful questions to ask the management team about your organisation’s ethical and sustainable work practices.