Back Home 5 News 5 Big gaps in the govt’s proposed income insurance scheme

Big gaps in the govt’s proposed income insurance scheme

11 Feb 2022

| Author: Simon Schofield

As a result of covid-19, the government, in conjunction with Business New Zealand and the New Zealand Council of Trade Unions, has developed an income insurance scheme for workers who lose their jobs because of redundancy or illness.

Strongly-held political views are already being aired. From the political left, we are told the proposal creates a double-tiered welfare system which perpetuates inequities – for example, for low-paid women. Those on the political right say it’s another job tax, is not insurance as the levies are a fixed percentage of wages or salary and take no account of risk, and that the scheme will be abused.

Submissions on the 178-page document are due by 5pm on 26 April. Submitters can answer a short survey or provide a detailed submission. Full details are available here.

Unanswered questions

Overall the proposal is overly complex and the policy settings seem to go too far. Throughout the proposal, there are references to ‘redundancy’, being ‘laid off’, ‘displacement’, ‘health conditions’ and ‘disabilities’ but there is no precision.

No consideration is given to how the scheme will affect existing employment law, including the statutory minimum of three months’ lost remuneration in the event of a substantively unjustified dismissal.

There are several significant questions to be asked. Should this scheme, like the ACC system, have some sort of litigation bar? How will the scheme affect existing redundancy compensation in collective agreements? How do you prevent poor performance issues being disguised as a redundancy if both a worker and business agree? Would it be better if the system were voluntary, like KiwiSaver? How will coverage for health and disability conditions deal with issues of bullying? Shouldn’t experience rating be used, as with ACC? How do you prevent a worker from making unlimited claims of being made redundant every 18 months?

That said, given the international backdrop, businesses and workers should engage with the proposal and not too readily dismiss it. Some sort of ongoing financial support for redundant and/or incapacitated workers (outside of ACC) is desirable for businesses and workers alike. Elements of the proposal in light of the covid-19 Wage Subsidy and Resurgence Support Payment are worth consideration. Whether it will pass muster is another question.

No support

When a worker is made redundant or is incapacitated due to a health condition or disability through no fault of their own, they usually have no ongoing financial support. Some large employers may make redundancy payments but most employees on individual employment agreements do not have any right to redundancy compensation.

While Jobseeker Support is provided through Work and Income, payments are minimal and means tested. Access to KiwiSaver is another option if a person is suffering from ‘significant financial hardship’ or is suffering from a ‘serious illness’ but access is tightly guarded. ACC is limited to specific types of injuries. Employees may pursue a personal grievance but termination due to redundancy or medical incapacity in such situations is likely to be substantively justified so lost remuneration is unlikely to be awarded.

While most of the developed world, including Australia, United Kingdom, United States and Canada have some sort of broad ongoing paid statutory support for redundant and/or incapacitated workers, New Zealand does not, outside of ACC.

The reason is simple. For most of New Zealand’s history, the percentage of unemployed has rarely reached double figures (currently, it is at an all-time low of 3.2%). Previous attempts to introduce social unemployment insurance fell flat because unemployment was seen as a national responsibility. More recent attempts to introduce redundancy compensation have likewise been politically unpalatable as they were seen as pushing the financial burden onto employers. The result has increased pressure on employees pursuing personal grievances under the Employment Relations Act 2000.

The proposed scheme

The government’s solution is to adopt a New Zealand Income Insurance Scheme. At its core, the proposed ACC-style scheme would:

  • cover both redundancy and health conditions and disabilities (outside of ACC);
  • exclude termination for poor performance, serious misconduct, and resignation;
  • cover most workers, including fixed-term, seasonal and casual employees. It would also cover some self-employed and contractors;
  • cover a person who suffers a 20% loss of total earnings where the worker has multiple jobs;
  • be limited to New Zealand citizens and residents;
  • exclude working holiday-makers, international students and temporary work-visa holders but they will still be required to contribute levies;
  • start after a worker has made six months’ worth of levy contributions in the previous 18 months;
  • comprise of a four-week notice period, followed by a four-week employer-paid ‘bridging payment’ and then six months’ financial support from the scheme;
  • have the ability to be extended up to 12 months for training and rehabilitation;
  • have an income replacement rate of 80%, which is the same as ACC;
  • be capped at $130,911 per year (adjusted annually) which is the same as the ACC cap;
  • for health and disability claimants:
    • cover those who must stop work entirely or experience a reduction in their capacity to work by at least 50% for at least four weeks;
    • require assessment by the claimant’s medical practitioner with final eligibility assessed by the scheme;
    • make employers responsible for taking reasonable steps to support an employee to continue working; and
    • help employers to make reasonable efforts to keep a job open where a return to work is likely due to a health condition or disability.
  • allow a person to earn 20% of their previous income before abatement kicks in;
  • not affect most other forms of government support such as superannuation;
  • provide support to get back to work through a case management service;
  • require claimants to look for work or prepare to return to work while receiving insurance;
  • cease when a claimant does not accept any job that matches his/her previous income and other terms and conditions;
  • provide a 28-day grace period for travel overseas without affecting entitlement;
  • be administered by ACC;
  • be fully suspended in cases of serious, intentional non-compliance with obligations;
  • have the offences and penalties framework of ACC;
  • provide an ‘efficient and independent dispute resolution process’ similar to ACC;
  • be built to honour the Treaty of Waitangi;
  • be funded by levies on both workers and businesses paying an estimated 1.39% each; and
  • operate two funds: one for redundancy and one for health and disability claims.

Simon Schofield is a teaching fellow at the University of Auckland

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