The pending NZ Income Insurance Scheme - just another tax on business and people?
New Zealand Income Insurance Scheme (NZIIS) Blog Series
In this new 4 Blog Series we cover the pending NZIIS which is touted to align NZ with other developed countries in providing a mandatory nationwide income insurance scheme.
The NZIIS will be funded by both employees at 1.39% of their salary, and employers who will also pay 1.39% but across the entire payroll.
The 4 Blog Series will run over 3 weeks and cover:
1 Introduction
2 Impact on Individuals
3 Impact on Employers
4 General Observations
Blog 1 - Introduction
The pending New Zealand Income Insurance Scheme (NZIIS) is touted to align NZ with other developed countries in providing a mandatory nationwide income insurance scheme.
By introducing such a scheme, it is believed that businesses will become more productive, and NZ Inc will move to a higher productive economy.
The COVID impact was an eye opener for a lot of folks in the Beehive. Of particular note was that the Government had to prop up the wages and businesses by providing the wage subsidy and the resurgence payments amongst others.
It is stated the NZIIS will allow for support to move from supporting workers as a whole to stay in their jobs and instead target the support to the individual directly.
The current inequity regarding ACC support at 80% of income versus losing your job or becoming ill is also addressed.
Lastly, we are advised that the current system doesn’t give people time to find work that matches skills.
All of this was directly taken from the MBIE introduction into why the NZIIS is being developed.
So, what is the NZIIS?
Imagine if you are made redundant, have an illness, or become disabled. The scheme allows for up to 7 months of financial support set at 80% of your pre-incapacity income (just like ACC). The scheme itself starts from week 5, as the employer will be required to provide 4 weeks of redundancy payments first. This is regardless of what your current employment contracts state, the 4 weeks will be compulsory.
The scheme will sit under ACC and will be available to anyone who has worked at least 6 months in the last 18 months, and you can apply once every 18 months.
The scheme is to be funded by both workers and employers. Both pay 1.39% of their payroll into the scheme. For employees, this will be done automatically through their payroll tax and will be forwarded to ACC (just like the 1.41% Earners Levy all employees pay). For employers, the 1.39% will be on top of your ACC levies and given the average levy is currently under 0.7% of payroll, you will face a substantial increase.
Who is eligible: people who are laid off, made redundant, get a health condition or a disability.
Criteria 1: you must be actively looking for work or take part in training or vocational rehabilitation.
Criteria 2: you must have worked for 6 months in the last 18 months.
Fixed Term / Seasonal Contracts: only covered up to the fixed term date.
Casual Contracts: if the worker can show a regular pattern with an employer, they will get full support.
Multiple Jobs: if you lose more that 20% of your income you can be topped up to the 80% cap.
Self-Employed: no idea!! This space requires ongoing work as it is going to be difficult to determine what is just standard business jobs finishing versus losing work. The self-employed will need to show similarity to being laid off or made redundant.
Means Tested: no, this does not apply.
Is there a Cap: yes, just like ACC, there is a maximum cap that is just over $130,000 of income. At this stage there is no minimum cap like ACC although the minimum wage will have an impact on this.
Health Impact: the benchmark is a minimum 50% reduction in the capacity to work for at least 4 weeks or more.
Health / Disability Controls: at this stage, we presume that this is going to be managed via the Medical Certificate – no different to an ACC claim.