Would a Labour Inspector find your business in breach of minimum employment law standards?
The Labour Inspectorate enforces and monitors minimum employment standards such as the minimum wage, holidays and leave entitlements. A Labour Inspector has the legal right to issue a financial penalty, liability to both the company and the directors as an individual for arrears in wages and holiday pay, and the business may be added to the Non-Compliant Employer List maintained by the Ministry of Business, Innovation and Employment (MBIE).
Quite simply, a Labour Inspector can conduct a proactive audit on any business at any time. There is a current trend in the retail, hospitality and other sectors that typically employ migrant employees and minimum wage earners. Over the past year, the Labour Inspectorate has taken 19 cases to the Employment Relations Authority/Employment Court that resulted in penalties awarded to the amount of nearly $260,000 in wage and holiday pay arrears and over $450,000 in penalties to be paid personally by individuals.
Determining whether a shareholder is also an employee requires you to determine what the real nature of the relationship is. This test, which is similar to the test for determining whether a person is an independent contractor or an employee, requires analysing the intentions of the parties and how the relationship operates in practice. This is obviously specific to each individual arrangement/relationship.
The recent case of Labour Inspector v Satyam Limited¹ highlights that penalties were awarded to both the employer and director as follows:
• to the employer, who operates a convenience store, a penalty in the sum of $18,000 for failure to keep accurate records and public holiday entitlement breaches; and
• to the sole director of the business, a penalty in the sum of $9,000, as a person involved in the breaches.
An essential requirement is for every employee to have a signed, written employment agreement. Some employers try to get around this by offering an unpaid “on the job” trial, however we advise to tread with caution that the employee does not actually perform work for the business². Instead, employers can utilize a precise trial period clause, for employers with less than 20 employees, and must ensure the agreement is signed prior to work commences. A good ‘test’ to ascertain whether the employment relationship has started is to ask “have the terms of the employment been agreed, including a discussion on salary, hours to work and other details”³.
Secondly, employees must be on the correct type of employment agreement. There are three types of employment agreements including permanent (full time and part time), casual and fixed term. Each agreement affects the employee’s entitlements to holidays and leave; thereby showcasing the imperative need for employers get this right, as this is step one.
Other essential details in employment agreements include:
• Ensuring there are no illegal clauses in the agreement (including, but not limited to any boarding house agreements which are not legally compliant, or any “working for free” provisions;
• The amount the employer will pay in wages or salary to the employee;
• A description of the work to be performed by the employee; and
• The place of work.
Employers are required to keep accurate written records of all employee’s time worked, payments, holidays and leave taken, and entitlements, in accordance with s130 of the Employment Relations Act (Act). Records need to be sufficient to enable the employer to demonstrate they have complied with minimum standards and entitlements.
The employer must be able to show, for each employee:
• The number of hours the employee has worked in a pay period and the pay for those hours;
• Records showing the employee’s postal address;
• A valid IRD number; and
• Documentation to prove that PAYE was paid by the employer.
Recently McDonalds and District Health Boards have been scrutinized for miscalculating holiday entitlements to their employees, resulting in millions of dollars of “back-pay” owed to their employees. Misleadingly, employers are relying on their systems or hoping their employees will not bring forward a claim; instead of routinely checking that their minimum employer obligations are met.
Firstly, employers must accurately use the correct type of employment agreement as this will outline how holiday and leave entitlements are then paid to employees. We heavily caution that only employees on casual employees should be paid 8% holiday pay, with the exception of permanent employees who work for less than one year of continuous employment.
Employers must keep compliant holiday and leave records in accordance with s81 of the Holidays Act 2003 (HA). Similarly, employers must also provide public holiday entitlements under ss46, 49, 50, 56 and 60 of the HA.
¹  NZERA 631.² The Salad Bowl Ltd v Howe-Thornley  NZEmpC 14.³ Hussein v Otahuhu Community Pharmacy Limited  NZERA Auckland 19.
Feel free to contact a member of the workplace law team to have your business reviewed, including a thorough analysis of each employee, or to have a confidential chat about minimum employment law standards. Please note, this article is provided purely from an employment law perspective, however there may be accounting or immigration matters that need to be separately addressed.
Workplace Law Team
Employment: Andrew Shaw, Fiona McMillan, Gwen Drewitt, Maria Green, Hannah Martin, Alex Beal, Giuliana Petronelli, Ana Fruean, Elise Wilson, Abby Shieh, Sean Kim
Immigration: Mark Williams, Rachael Mason, Daniel Kruger, Nicky Robertson, Hetish Lochan, Julia Strickett, Rita Worner, Lavinia Shanks, Ken Huang, Sally Stone, Shi Sheng Cai (Shoosh), Josh Templeton, Mary Zhou, Sarah Kirkwwood, Janeske Schutte, Sati Ravichandiren, Lingbo Yu
ACC: Andrew Shaw
Health and Safety: Andrew Shaw, Fiona McMillan
Partner, Lane Neave
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