Pinged, penalised and publicly shamed: what we can learn from Kiwi companies caught underpaying people

When Woolworths Australia announced that it may have underpaid its staff up to $300m, it was the largest underpayment in recent history. The company joins a growing list of brands like Michael Hill, 7-Eleven, Rockpool Group, and George Calombaris, who’ve been underpaying workers, sometimes for years.

Underpayment issues aren’t just a small-business problem or limited to a few industries like hospitality and retail: they’re common across businesses of all sizes and all industries.

They also aren’t just an Australian problem. Underpayment issues are happening here in New Zealand too.

A range of legislation is relevant to managing pay for employees in NZ, including:

• The Employment Relations Act 2000;
• The Holidays Act 2003;
• The Wages Protection Act 1983;
• The Minimum Wage Act 1983; and
• The Equal Pay Act 1972.

Even with heavy regulation, wage theft is more common in the NZ Labour market than you might expect. One of the most recent and serious cases Citation HR has come across involves two Hamilton-based Super Liquor stores that have been ordered to pay a record-breaking $450,000 in penalties and arrears for minimum wage and holiday pay arrears. Between 2010 and 2017, employees at their stores worked for well below minimum wage ($8.00 to $11.00 an hour), and some worked more than 60 hours a week. One employee was underpaid for seven years and had to be paid over $100,000.

Another recent case involving a chain of six restaurants, all with the same director, was investigated by the Labour Inspectorate, and the results were shocking. It was claimed that the director told eight employees to systematically record many fewer hours than were actually worked and subsequently unpaid its employees. It was calculated that the employer may owe the eight employees over $286,000 in arrears payment. The director was accused of breaching the Minimum Wage Act 1983, the Holidays Act 2003, and the Employment Relations Act 2000. The Courts upheld the claims made by the Labour Inspectorate and fines were imposed against the director and the defendant companies.

Wage theft occurs when an employer underpays, holds back holiday pay or expects employees to work overtime and attend meetings outside of standard working hours without pay. This is also common in situations of migrant exploitation. These actions are some ways employers might breach the Wages Protection Act 1983. Unless one of New Zealand’s 60 or so labour inspectors uncovers wage theft during an investigation, it’s hard to know if or when it’s happening. New Zealand has a history of payroll errors and breaches, and these evidence show that wage theft is a very real problem.

In 2016, the Council of Trade Unions found that workers had been repaid over $35 million for payroll “errors”. In 2017, an audit of the forestry industry revealed widespread employment breaches, including that of paying staff under minimum wage. In 2018, 277 employers were placed on a ban from hiring migrant workers for failing to meet minimum employment standards including underpayment. In February 2019, the prevalence of wage theft in the shearing industry led to the first collective agreement in 24 years.

That said, not all payment breaches are intentional. Non-compliance is most commonly due to businesses failing to understand how the law works or outsourcing to payroll companies, which makes errors.

Employers can claim payroll  is at fault – but that’s not how the law sees it

An employer should never blindly rely on payroll to get employee pay entitlements correct. When you use a payroll provider, you’re responsible as the employer to check for compliance issues. Remember, payroll systems can only work off the information that you give them – meaning inputting the correct information is essential.  Equally, while some payroll systems may be flawed, complex legislation such as the Holiday Pay Act makes it very hard for a system to keep up with complicated employment structures without human checks and corrections.

The Holiday Pay Act is considered notorious by some employers for seeming difficult to interpret and apply, especially in industries where workers do not work regularly between 9am – 5pm from Monday to Friday.

One of the industries that has many underpayment and holiday pay miscalculation problems is public health. The NZ regional public health organisations which were until recently known as District Health Boards (now Health New Zealand)  have been in the spotlight for the staggering remediation costs they are facing in order to fix holiday pay mistakes dating back as far as 2010. Over 100,000 nurses, doctors, and health professionals have been promised half a billion dollars to back pay them for underpayments.

The health sector is not the only area where organisations are struggling to interpret the Holiday Pay Act 2003. NZ Police and Restaurant Brands have also been investigated and found to be in breach of pay entitlements.

Could your business have inadvertently allowed underpayment or wage theft to happen?

Underpayment issues have been so consistently unearthed in the media that it raises the question: why do they continue to happen?

The answer is simple: in our experience, payroll compliance requires the type of specialist guidance best delivered by the type of Workplace Relations Advisors who operate the Telephone Advisory Service at Citation HR. It’s because many people working in payroll teams may have good intentions and reasonably good training, but may not have been equipped to navigate complex pay legislation. They’re working to manage massive amounts of money in today’s diverse and flexible working environments against rules and regulations that date back to the 1970s when workplaces and employment were far more regimented. Nowadays, to not seek professional and specialist help from specialist HR advisors is a risky move.

Ways to work out if you might be underpaying your staff

Ask yourself:

• Are you confident that your business knows precisely what minimum entitlements apply under the Minimum Wage Act, Wages Protection Act, the Holidays Act and all other relevant pay and wage legislation to all your staff?
• If you pay an annual salary to your staff, are you confident that your staff are being paid appropriately to comply with New Zealand wages and pay requirements and that you have the right contracts in place?
• When was the last time your business conducted an audit (even sample audit) for compliance with their employer obligations under New Zealand wages and pay legislation?
• Do you know the difference between “ordinary weekly pay” and “average weekly pay”; and “ordinary daily pay” and “average daily pay”? And when to pay which one to whom?
• Are you confident your business has enough skills to identify and report any non-compliance with employee minimum pays entitlements and your obligations?
• Do you have a whistle-blower line set up so staff can report to management any concerns over pay?

If the answer to any of these is ‘no’ or ‘I’m not sure,’ professional advice from Citation HR is highly recommended.

Not taking action can lead to penalties which might cripple the business

Did you know that as an employer, director, or manager, you can be held personally liable for penalties and the recovery of debt thanks to a change in legislation in 2016? Underpayment investigations are always damaging. Fortunately, Citation HR is all about restoring you to compliance. Citation HR can help you establish if your payment systems and records are protected by legal privilege, allowing you the chance to sort out any issues before they become front-page news, damage your business and your brand, expose you to fines and criminal prosecution.

If this article has raised any questions or concerns or you’d like to learn more about how we can help your business, please reach out to our workplace relations experts via our 24/7 HR Advice Line.