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Remuneration Disclosures
Guidance for Local Government Staff
This short piece of guidance covers the disclosure of employee staffing levels and
remuneration (the disclosure) as required by clause 32A, Schedule 10 of the Local
Government Act (the Act). Its intent is to help local authorities interpret and apply clause
32A in a clear, cost-effective, logical and compliant manner.
Purpose
This disclosure requirement was introduced by the Local Government Amendment Act 2012.
It is one of a pair of Better Local Government reforms that are intended to “control local
authority salaries”. Elected members have been empowered to set a remuneration and
staffing policy - in effect guidelines (including a possible cap) on staff numbers and the total
remuneration bill. The Regulatory Impact Statement that accompanied the Local
Government Bill states that
“to provide transparency, a council would be required to include in its annual report
information on the number of staff employed by salary bands. Currently, this information is
available only after an official information request”
In short, the disclosure is intended as an indirect “control” on council salaries by exposing
the growth in the number of employees and the movement of numbers through
remuneration bands to the public.
The Requirements
The exact wording of clause 32A is:
(1)
An annual report must include a report on the number of employees who were
employed by the local authority—
(a) on the last day of the financial year to which the report relates; and
(b) on the last day of the immediately preceding financial year.
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(2)
For each financial year, the report must state, as at the last day of that year,—
(a) the number of full-time employees; and
(b) the full-time equivalent number of all other employees; and
(c) the number of employees receiving total annual remuneration of less than
$60,000; and
(d) the number of employees receiving total annual remuneration of $60,000 or
more, expressed in bands of $20,000.
(3)
However, if the number of employees in any band to which subclause (2)(d) applies is
5 or fewer, the number for that band must be combined with the next-highest band
and the statement in the report in relation to that subclause must be adjusted
accordingly.
(4)
In subclause (2), total annual remuneration includes the value of any non-financial
benefit that, during the year, was paid to an employee, or was payable to an
employee, by the local authority.
(5)
The report requirement in this clause applies to—
(a) the financial year ending 30 June 2013; and
(b) each following financial year.
This requirement is more complex than it appears on first glance. We strongly advise
against leaving it until the last minute to comply, and that preparation of this disclosure be
project planned on much the same basis as any other component of the annual report.
Reporting Date
The information calls for the disclosure of numbers as at the last day of the financial year to
which the report relates i.e. balance date. For comparative purposes the disclosure must also
include numbers as at 30 June the previous year 1.
As these measures are as at balance date, local authorities should report all employees who
were employed on 30 June, but should not include information about employees who left
during the year.
1
This requirement also applies to the first disclosure – that is to say that the 2012/13 annual report must include
the required information as at 30 June 2013 and as at 30 June 2012.
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Who is an Employee?
The term "employee" in clause 32A is intended to capture only those people who are in an
employment relationship with council and are an employee for the purposes of section 6 of
the Employment Relations Act 2000 (ERA).
All employees on the books at 30 June – whether permanent, fixed term or casual should be
included in the disclosures.
Independent contractors are excluded from the disclosure obligations in clause 32A.
Section 6 of the ERA defines the term "employee" for the purposes of the ERA. Section 6(2)
of the ERA provides that when deciding whether a person is an employee or an independent
contractor, the Employment Relations Authority or Court must determine the "real nature of
the relationship".
Section 6(3) provides that in determining whether a person is an employee or a contractor,
the Authority or the Court:
•
must consider "all relevant matters", including any matters that indicate the intention
of the person; and
•
is not to treat as a determining matter any statement that describes the nature of the
relationship.
"All relevant matters" are not defined in the ERA, although section 6(3)(a) states that they
include any matters that "indicate the intention of the parties".
The courts have developed and used five flexible, and often inter-linking and overlapping
tests, to determine "the real nature of the relationship" between parties. These "tests" are
merely rules of thumb used by the courts, rather than distinct, formal legal tests:
•
The Control test looks at the degree of control the employer exerts over what the
worker is to do and the manner in which it is to be done. The greater the extent to
which council specifies the work content, hours, methods of work, and can supervise,
regulate and/or dismiss the worker, the more likely it is that the worker will be an
employee.
•
The Independence test is the opposite of the control test. A high level of
independence on the part of the worker is inconsistent with the high level of control
by council. The lower the level of independence, the more likely that the worker will
be an employee of council. Some factors that may indicate a high level of
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independence are, for example, where the individual works for other people, or
supplies his/her own tools and equipment.
•
The Integration test considers whether the person is "part and parcel" of the
employer. According to this test, the worker is likely to be a council employee if their
work is integral to council, is commonly done council employees, is continuous and is
for the benefit of council rather than the worker.
•
The Fundamental test considers whether the worker is performing the services in
business on his or her own account. If this is the case, the worker is more likely to be
a contractor, and if not, the worker is likely to be an employee.
•
The Economic Reality test examines whether council's situation, location of work
and nature of work justify the hiring of contractors.
While the courts have drawn on all of the above tests in assessing whether an individual is an
employee or a contractor (with no one test being given more weight than the others), if the
"control test" is met, then it is most likely that this will be determinative of the matter.
The CE is an employee of council, they should be included in the disclosure. Don’t forget
that details of CE remuneration must also be separately disclosed (clause 32, schedule10).
Elected members are not regarded as employees for tax purposes and should be excluded
from this disclosure (but note that clause 32, schedule 10 requires separate disclosure of
elected member salaries).
PBE IPSAS 20 also requires separate disclosures of the salaries of key management
personnel.
Employee Counts
The legislation is worded in such a way that there are two different sets of information
required.
Clause 32A(2)(a) requires disclosure of a “head count” of the number of full-time employees.
Fixed term staff obligated to work full-time hours should be regarded as full-time.
Clause 32A(2)(b) however requires the disclosure of the number of part-time employees in
full-time equivalents (FTE). There is no definition of FTE in the legislation and your council
therefore has the option of its own definition of FTE. It is our understanding that most
regard 1 FTE as being 40 hours per week, 52 weeks per year, although some councils use
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37.5 hours per week. Your definition should be included alongside the disclosure to aid
reader understanding.
The question then arises regarding casual employees that “count” for the purpose of this
disclosure. You will need to make an estimate of the number of hours the employee worked
during the year and then set that against your local authority's definition of FTE.
Clauses 32A(2)(c) and(d) each require disclosure of a “head count”. There is no expectation
that the sum of these two disclosures will be identical to the total of (a) plus (b) – in most
instances they would not be, given that most local authorities employ some people on a less
than full-time basis. In our discussions with the audit sector, they have suggested that your
local authority will need to provide information to enable auditors to reconcile how the two
fit together.
Privacy Protection
Parliament did not intend that this disclosure requirement would be used to disclose
individual packages. For this reason where any band contains five or fewer employees, it
must be combined with the next highest band. The power to combine bands allows only for
“combining up” , it does not allow for combining downwards. An example of this is shown
below.
Example
The Central Regional Council has compiled the ”raw” information for the disclosure and
found the following.
It notes there are six managers all sitting in the 120-140K band. But there are also three
senior managers sitting in the 140-160K band, and the CE who sits in the $280-300K band.
There being no statutory authority to omit the CE or to “combine” down, in this case Central
Region would disclose the following for their CE and senior managers.
$120.000-139,999
$140,000-299,999
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Your disclosure must include comparatives. Suppose three employees in the $120-140K
band in this local authority move into the next highest pay band, and that three employees
in the 100-120 band move into the $120-140K band.
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Year A -1
$120.000-139,999
$140,000-299,999
6
4
Year A
$120.000-139,999
$140,000-159,999
$280,000-$299,999
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“Remuneration”
Clause 32A requires disclosure of a council's numbers of employees in bands based on their
total annual remuneration.
The legislation requires disclosures of numbers of employees, as at 30 June, who are
“receiving total annual remuneration”, and provides that "total annual remuneration" includes
any “non-financial benefit that, during the year, was paid to an employee, or was payable to
an employee“.
Schedule 10 of the Act does not otherwise define remuneration. However, clause 13 of
Schedule 7, Part 1 of the Act defines remuneration (in relation to members) as including:
"salary, wages, and other payments in return for services; and monetary and non-monetary
benefits and emoluments in return for services."
While this definition is specifically in relation to members' remuneration, it is a useful guide
to how remuneration should be interpreted for the purposes of clause 32A. In particular, the
focus should be on any salary, wages, and any other payments or benefits (monetary or nonmonetary) in return for services (as opposed to any 'tool of the trade' provided to enable
an employee to fulfil their role, or otherwise assist them in their duties).
Wages and Salaries
In the case of an employee that worked only part of a year, the employee’s salary should be
disclosed as though they worked a full year. This includes all ordinary and overtime
payments and any bonus in respect of that financial year.
There is no requirement to “annualise” the wages or salaries paid to part time or causal
employees – indeed annualising would overinflate the numbers of staff in higher wage and
salary brackets. Most part-time employees will therefore fall in the lowest bracket (i.e. the
“under 60K” bracket) but a local authority that is concerned that part-time employees may
distort the overall picture can, in addition to providing the necessary disclosures under
clause32A(c) and (d), provide further explanation or a breakdown of the figures into full-time,
part-time and total.
Generally reimbursement of out of pocket expenses should not be treated as remuneration.
In the rare cases where the reimbursement of expenses is taxable those expenses should be
treated as remuneration.
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Other Benefits
It is common that remuneration packages include a non-wage/salary component such as
private use of a motor vehicle, medical insurance, employer contributions to a
superannuation scheme and so on. We’ll use the term “benefits” as a shorthand descriptor.
Clause 32A requires valuation and disclosure of all benefits paid, or payable to an employee.
If a value for the benefit is disclosed in an employment agreement, that value should be
used. The basis for arriving at that value should be documented for audit purposes.
If no value is stated in an agreement and the benefit is eligible for Fringe Benefit Tax the
values used in calculating the tax payable on the benefit should be used in calculating total
remuneration. Where a benefit is not subject to Fringe Benefit Tax then the best estimates
should be used – be sure to document how these values were arrived at for audit purposes.
Employer contributions to KiwiSaver should be treated as the council would treat a
contribution to any other superannuation scheme. The obligation to pay KiwiSaver is
generated by the existence of an employment relationship, and most local authorities now
include the contribution to KiwiSaver as a standard term of employment.
Memberships are an area that is open to some interpretation. Most professional or
occupational societies exist either as a means of assuring quality control over advice or
services; or as a collective means to identify training needs. In both instances we regard
these as something that exists to enable the employee to better do their job, rather than
remuneration as such. There may be some memberships where this case cannot be made.
In a similar vein, where the council provides tools, equipment or clothing as a requirement of
the job; or a staff member has received training, neither should be treated as remuneration.
There is no need to value and disclose annual leave that has been taken by an employee.
However, where:
• an employee and your local authority agree to exercise the option to voluntarily “cash
up” one week’s leave (as permitted under the Holidays Act 2003); or
• untaken annual leave has been paid out on termination of an employee's employment,
these amounts should be treated as remuneration for the purposes of clause 32A.
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Example A
John Smith starts employment at Kiwi District Council on 1 May 2013, his terms of
employment state his annual salary is $70,000, and his council also agreed to pay for a
SOLGM associate membership ($150 paid in June 2013). John was also sent on a four day
Introduction to Policy Course in May 2013 that cost the council $2500. What is John’s total
annual remuneration?
The associate membership and the training are excluded as tools of the trade rather than
remuneration.
John’s total annual remuneration is therefore $70,000.
Example B
Esmeralda Jones worked for Weka District Council throughout the 2012/13 financial year.
Her salary is $90,000 (paid in full), she receives private use of a motor vehicle worth $9000
(paid in full), and a SOLGM membership of $280.
She also received a $3000 bonus in September 2012 for her performance in 2011/12, and in
August 2013 receives a similar bonus for the 2012/13 financial year. Which of these will
feature in the disclosure for the 2012/13 financial year?
The salary, vehicle, and the September 2013 bonus 2 would all feature in the disclosure for
the 2012/13 year. Although chronologically paid outside the 2012/13 financial year it was
paid in relation to performance in the 2012/13 financial year. Applying a similar principle,
the bonus paid in September 2012 would not be included in disclosures for the 2012/13 year
but would be included in the comparatives (i.e. the 2011/12 year).
As this package comes to $102,000 Esmeralda would be counted in the $100-120K band
(provided there were six or more employees in this band).
2
The treatment of the bonus is very much an “ideal world” situation – in reality not all bonuses will be paid in
time for disclosure in an annual report.
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Example C
Joe Bloggs works for Bigg City Council. He normally works as a rates clerk on $50,000 per
year, but between 1 September 2012 and 1 March 2013 he acted as Revenue Manager, a
period during which he was paid at $70,000 per year. He received no other remuneration
during the course of the year. How should he be treated for the purposes of this disclosure?
The legislation requires a stock measure as at 30 June, we therefore regard Joe’s base salary
for the purpose of this disclosure the rate that applied as at 30 June. Joe would therefore be
treated as having an annual salary of $50,000 and would therefore appear in the $0-$60,000
band.
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