The Devil In The Detail - Minimum Standards and the Labour Inspector

The Labour Inspectorate is increasing its activity as a regulator of employers, and prosecutions are increasingly frequent.  Here are some things to be aware of.

Until recently many employers were blissfully unaware that the Ministry of Business Innovation and Employment employed Inspectors, with powers under the Employment Relations Act 2000 (Act) to inspect workplaces and employer documentation, and to deal with breaches of the Act.  In the last two years, and especially since amendments to the Act in 2016, the number of actions taken by Labour Inspectors has dramatically increased. 

Most of a Labour Inspector’s work relates to minimum standards – rate of pay, deductions, work exchange schemes (where people perform work for something other than money), and hours of work.  While these issues may seem the problems of only a small section of the market, in fact there are a number of recent cases dealing with apparently sophisticated employers who failed to retain copies of an employment agreement, or to maintain proper wage, time and leave records.

A key area of interest for the Inspectorate is the calculation and payment of holiday pay.  The Police have been a recent high-profile example of an employer that has failed to calculate and pay holiday and leave entitlements correctly.  Holiday pay problems are unlikely if your entire workforce works a 40-hour week for a fixed salary.  However, that is hardly the nature of the modern workplace.  Where employees work irregularly or in shifts, receive additional pay for extra hours, or get bonus or incentive payments, their holiday pay will require adjustment.  Leave without pay or parental leave may mean that holidays require special handling.  It has been suggested that some payroll products available on the market are simply not capable of properly calculating holiday pay entitlements in the modern environment.     

An increased emphasis on enforcement of minimum standards, and the ability of the Labour Inspector to seek fines of up to $20,000 per breach (including in some cases against directors and shareholders personally), or issue infringements notices (tickets) for smaller breaches means that it is essential that businesses maintain good records and review their compliance on an ongoing basis.  A recent policy change means that an employer who has received an infringement notice may be prevented from supporting work visa applications for employees from overseas. 

Here are some things to think about:

• Have I retained a copy of every employee’s employment agreement, and any amendments to that.  If there are matters that haven’t been agreed, have I maintained a record of negotiations?

• Are my employees being paid at least the minimum hourly rate for hours actually worked each pay period?  It is not acceptable to “average” an employee’s pay over a year – every hour worked per pay period must be paid at least the minimum wage;

• Does my payroll system adequately account for the nuances of the manner in which employees are paid?  Is it capable of adjusting entitlements where the employee works extra hours?  Does it automatically adjust entitlements where a one-off payment is made?  Does it deal with pay increases appropriately?  How is the comparison between average weekly earnings and ordinary weekly pay made?

• Are any deductions from an employee’s pay made lawfully?  If the deduction is in respect of accommodation or an employee’s debt to the employer, are the requirements of the Minimum Wage Act followed?

• Are my contractors truly contractors?  What is the risk they may be found to be employees, and what is the difference to my liability if they are?

Revisit these questions from time to time, especially after unusual events, or around periods where a lot of leave is taken to make sure you stay away from the attention of the Labour Inspector and the devil in the detail.  If you would like a second pair of eyes to look over your current arrangements, please do not hesitate to call me.