"In effect, the employees are taking a pay cut, which the employers are using to pay their KiwiSaver contribution," Mallard says.

"Employers have been able to get away with this in total remuneration packages, in particular, when they have insisted that the packages include employees paying the employers' compulsory KiwiSaver contribution.

"The government initially decided to leave the issue of contributions to normal good faith bargaining between employers, employees and unions. However, some employers have taken advantage of this situation, so we have decided to amend the act."

Under the changes it will be unlawful for employers to offer employees different salary packages on the basis of their KiwiSaver membership. Employees would be able to take a personal grievance against their employer in this situation.

However the Employers and Manufacturers Association opposes the changes. Northern chief executive Alasdair Thompson says it discriminates against all workers who can't afford to join KiwiSaver or who are barred from joining it due to their age.

"It discriminates against all workers not in KiwiSaver - this year any new employees will be paid at least 1% less than those employees in KiwiSaver. Next year they will be paid at least 2% less than those in KiwiSaver. The year after that they will be paid 3% less, and in 2011 they will be paid 4% less than those in KiwiSaver.

"This amendment is in conflict with employment law that makes discrimination between equally performing employees doing equal jobs in the workplace illegal.

"Paying employees 4% less because they are not in KiwiSaver will create workplace disharmony and is unacceptable."