Rethinking the Income Threshold in the Employment Relations Bill

Rethinking the Income Threshold in the Employment Relations Bill

At Business Canterbury, we’re supportive of the Employment Relations Bill currently before Parliament. In several areas, it takes important steps toward rebalancing parts of the employment relations system – a system that has been under strain for some time.

But there’s one section of the Bill we wanted to focus on when we presented to the Parliamentary Select Committee last week: the proposed income threshold for unjustified dismissal. This is where we believe the changes may not deliver the intended benefits for SMEs and businesses more generally across the South Island.

• Download Business Canterbury and Business South’s joint submission on the Employment Relations Bill
  
  

The challenge for SMEs in hiring senior leaders

We agree with Minister van Velden’s view that “Having a poor performing manager or executive can have big flow-on effects for the entire business and increase the risk of poor culture and low morale.”

For a long time, SMEs have faced a confidence gap when it comes to hiring senior leadership roles. These roles carry enormous weight in smaller organisations, where one individual can directly shape culture, performance, and business trajectory. At the same time, SMEs tend to avoid dismissals unless absolutely necessary, given the close-knit nature of their teams and the personal ties between ownership, leadership, and staff.

That’s why signals in this Bill are important as the changes might mean businesses can have more confidence to recruit, promote, or back emerging leaders without excessive fear of what might happen if the fit isn’t right.

Not all dismissals are about performance, either. Sometimes it’s simply a personality clash or a mismatch of working styles. In such cases, it’s reasonable to expect a better way to navigate those situations if both employer and employee agreed to a process at the outset of the employment contract.

Why the $180,000 threshold falls short

The Bill currently proposes an income threshold of $180,000, covering around 3.4 percent of the workforce and aligning with the top income tax rate. We understand the rationale – income is a straightforward way to measure seniority, particularly given the variation in job titles across industries.

But here’s the issue: most SMEs – who make up 97% of New Zealand businesses – don’t have leaders earning more than $180,000. If the purpose of this Bill is to create more labour market flexibility in senior leadership roles, then the threshold risks excluding the very businesses that could benefit most.

Larger corporates, with better access to HR and legal advice, may argue that $180k isn’t high enough. But for SMEs, that level is far too high to be practical. In our experience, a threshold closer to $130,000 would be a more accurate reflection of seniority across smaller businesses.

A better way forward

We believe the intent of this part of the Bill is sound – but the design needs refining to ensure it’s accessible for businesses of all sizes. One way forward could be:

• Lowering the income threshold to better reflect SME leadership roles.
• Basing eligibility on criteria beyond salary – such as budget responsibility, decision-making authority, or direct impact on business operations.
• Creating a clear contracting-out pathway, allowing employers and employees to agree upfront on how unjustified dismissal would be handled.

Supporting business confidence and growth

SMEs are the backbone of our economy. They create jobs, drive innovation, and grow communities. Yet they rarely have the same access to HR and legal support as larger organisations. Ensuring this Bill works for them is essential for New Zealand’s long-term economic resilience and enabling confident growth to return in our economy.

By refining this threshold, Parliament has the opportunity to give SMEs greater confidence in hiring, while also protecting employees with clear, upfront processes.