The Government will consider a law change to stop employers ripping off workers who have joined the KiwiSaver scheme, Labour Minister Trevor Mallard said today.

It has been revealed that some companies have found a loophole and are reducing pay rises by 1 percent to cover the contribution employers have to make to KiwiSaver accounts.

But the Government compensates for the 1 percent through a tax credit worth $20 a week to employers, enough to cover their contributions on salaries up to $104,000.

"I thought that in New Zealand we had employers of higher ethical standards than that," Mr Mallard told reporters at the Labour Party's annual congress in Wellington.

"If necessary there will have to be some legislation to cut them out."

Mr Mallard said the companies -- he had heard of three that were doing it -- were "essentially ripping off their employees...I hope they will wake up and start behaving themselves".

Mr Mallard said some workers had complained to the Department of Labour, which was investigating the situation.

"One is a very large employer -- I'm absolutely sure they understand what they're doing and that makes it even worse."

Mr Mallard later issued a statement saying he was "very unhappy" about the situation and accusing the employers of "the immoral practice of pocketing government money at their employees expense".

"I have also asked the Department of Labour to look into whether these sorts of actions could amount to a breach of good faith under the Employment Relations Act, which carry fines of up to $10,000," he said.