High Income Earners and Personal Grievance Changes - Early days

High Income Earners and Personal Grievance Changes

Members will recall that as part of the changes to the Employment Relations Act (ERA) that took effect February 21, 2026, a high-income threshold removed the right to bring a personal grievance for unjustified dismissal for employees earning a total annual remuneration of $200k or more for new employment agreements signed after the above date. For existing employment agreements as of that date, there is a 12-month transitional period until February 21, 2027. 

Here are some points for employers and employees to consider around using these provisions in the absence of significant case law to date in this area.

Employers and employees can explicitly agree to contract back in or "opt out" of these provisions. While these changes make it easier to terminate non-performing Senior Employees, this may be something to carefully consider when filling such positions and what this might mean for your Employment Brand in terms of attracting and retaining talent.

An important point to note is that the $200K limit is based on total annual package value. This includes base salary, bonuses, KiwiSaver contributions, allowances, and other benefits, not just base salary.

Annual remuneration is defined under section 67KI of the ERA as follows:

1. a PAYE income payment (as that term is defined in section RD 3(1) of the Income Tax Act 2007) that is made by the employer, other than an accident compensation earnings-related payment:

1. any other benefit arising from an employee share scheme under section CE 2 of the Income Tax Act 2007.

2.  

What Counts

The legislation captures nearly all forms of operational and performance-related compensation. The following payments count toward the threshold: 

• Base Salary or Wages: Your standard hourly, weekly, or monthly base pay.

• Overtime and Penal Rates: Extra cash earned for working additional or non-standard hours.

• Bonuses: Annual, performance-based, or special lump-sum bonuses.

• Commissions: Sales incentives, productivity payouts, or revenue shares.

• Allowances: Cash allowances paid alongside normal salary (e.g., tool or uniform allowances).

• Cashed-In Annual Leave: Any annual leave an employee chooses to exchange for cash.

• Lump-Sum Holiday Pay: Standard holiday pay variations or back-paid holiday entitlements.

• Employee Share Scheme Benefits: The monetary value or benefits derived from a company share program.

• Restrictive Covenant Payments: Financial compensation provided in exchange for accepting trade restraints or non-compete clauses.

• Gratuities: Tips or standard service-related gratuities processed through payroll

What Does Not Count

Certain statutory, independent, or compensatory payments are explicitly omitted from the calculation. The following do not count toward the threshold: 

• ACC Earnings-Related Payments: Statutory compensation payouts from the Accident Compensation Corporation. 

• Genuine Personal Grievance Payouts: Non-taxable compensation strictly awarded for humiliation, loss of dignity, or injury to feelings under Section 123(1)(c)(i) of the Act. 

• Reimbursements: Payments meant to cover actual, out-of-pocket business expenses (e.g., mileage or travel receipts) rather than acting as income.

• Superannuation Scheme Payouts: While employer contributions add to value, actual distributions from private superannuation or retirement funds do not apply as standard operational PAYE. 

Please note anything provided as a non-cash benefit that does not pass through Payroll and not taxed as PAYE does not count towards the remuneration threshold. Other examples include a company vehicle available for private use , paying a childcare payment directly on behalf of an employee or providing a low-interest or interest-free loan. Employee benefits subject to Fringe benefit Tax  (FBT) do not count towards the total remuneration threshold.

Employers may want to rethink their remuneration strategies if they want the new provisions to apply or not apply. 

I will provide case law updates about this area when decisions become available.

For further information or queries around this, please contact Michael Prisk at michaelp@businesscanterbury.co.nz if you need advice in this area.