By Vaughan Granier & Matthew Robinson

Woolworths Australia has just announced that it may have underpaid its staff around $200M to $300M – the largest underpayment in recent history. They join 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
  • 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 I can think of 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 to $11 an hour) and some worked more than 60-hours a week. One employee received over $100,000 for 7 years of underpayments.

Wage theft occurs when an employer deliberately underpays, holds back holiday pay or expects employees to work overtime and attend meetings outside of standard working hours without pay. These actions are some ways employers might breach the Wages Protection Act 1983. And unless one of New Zealand’s 60 or so labour inspectors uncover wage theft during an investigation, it’s hard to know if or when it’s happening. But it is. New Zealand has a history of payroll errors and breaches that give evidence to the fact 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. And 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 that make errors.

“It’s my payroll’s fault”.

A word of advice, you should never blindly rely on payroll to get your employee pay entitlements right. When you employ a payroll provider, you’re responsible as the employer to check for issues. Payroll systems can only work off the information that you give them. Have you provided the correct information? Equally, while some payroll systems may be flawed, complex legislation such as the Holiday Pay Act (which has been criticised as being an “unworkable” piece of legislation) makes it very hard for a system to keep up with complicated employment structures without human checks and corrections.

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

District Health Boards (DHBs) across NZ are 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 with their names hitting the media this year.

Could your business be next?

That’s certainly a question on the mind of many Australian retailers this week in the wake of the Woolworths case. New Zealand businesses too, will be wondering who’s next as case after case of underpayments hit the headlines, some with staggering numbers attached.

This Woolworths case is sure to bring significant adverse publicity that will severely damage the Woolworths brand and share price as regulators start to explore questions like “how”, “why” and “how much”.

Large-scale underpayments 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 is a dark art and requires specialist skills. Many people in payroll teams haven’t been equipped to navigate very complex pay legislation. They’re working to manage massive amounts of money in today’s diverse and flexible working environments, against rules and regulations which date back to the 1970s when workplaces and employment were far more regimented. Nowadays, to not seek professional and specialist help is a risky move.

Could you 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 overpay?

If the answer to any of these is ‘no’ or ‘I’m not sure’ then you might have a problem and should seek professional advice.

The worst thing you can do is to do nothing.

Fortunately, there are ways to mitigate the damage and even have underpayment investigations 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. 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.

I know all of this because finding and helping businesses to comply with their employment law obligations is what I do. My focus is on helping you find and fix any problems quickly, so you can pay what is due to your employees (and ex-employees) and stay out of the media spotlight.

If you think you might have an underpayment problem, or just want the peace of mind that comes with knowing you don’t, get in touch and we can talk about next steps.

Vaughan Granier is the National Workplace Relations Manager for HR Assured NZ. He has over 24 years’ experience in international human resources, health and safety, and workplace relations management. With over 10 years working in New Zealand and Australian companies, he provides in-depth support to leadership teams across all areas of HR, Health and Safety, and employee management.

Matthew Robinson is a partner and solicitor with FCB Workplace Law. He’s an accredited specialist in workplace law in NSW and has been advising clients on industrial relations and employment matters for over fifteen years.