Underpayment of Staff


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In two recent cases to come out of the Employment Relations Authority, Employees have been underpaid which has resulted in significant penalties.

Between April 2014 and April 2016, Avondale Community Pharmacy Limited employed 90 staff which included trainee pharmacy technicians. The trainees were required to complete a set number of hours of study per week while also working for the pharmacy for a minimum of 20 hours per week. The trainees were not paid for the hours spent studying which was described as “training hours”. The expectation was that the trainees would use down time while present in the pharmacy to complete their online course work and a deduction of 10 to 20 hours per week was made from their full time pay to offset the hours spent studying. No records were kept of the hours spent studying.

The primary issue resulted from the fact that the blanket deduction for training hours decreased the hourly rate of 12 employees below the minimum wage when including hours spent on training.

The Labour Inspector sought penalties for 13 breaches of the Minimum Wage Act 1983 and one breach of the Holidays Act 2003 with each breach having a maximum potential penalty of $20,000.00. The Authority considered that the Pharmacies did not have the intention of exploiting the Trainees and that they had resolved the breaches when notified of them and as such concluded that a penalty of $92,500.00 was appropriate in place of the potential $280,000.00 penalty they were facing.

In a separate case, Silviculture Solutions Limited was found to have breached section 6 of the Minimum Wage Act 1983.

During their visit the Labour Inspector checked company records of four random Employees. It was discovered that Silviculture had not paid at least the minimum wage for every hour worked by the Employees.

It was confirmed by the company that after a grace period of three months, the Employees were paid for the hours that the company regarded as “productive hours”, and not necessarily the total hours worked. Employees were paid the statutory entitlements for hours in which they achieved the targets.

The company advised through its Director Mr Hyde, that they calculated pay in this manner due to a concern of having to pay Employees when they had failed to reach the targets set for them. The Authority held that this was not the correct way to address performance issues and that other avenues were available to the company if performance was an issue.

The Labour Inspector only sought arrears for breaches of minimum wage entitlements and sought an order from the Authority imposing penalties for the breaches.

The Authority ordered Silviculture to pay $35,000.00 for breaching section 6 of the Minimum Wage Act 1983.

These cases outline that there are significant risks and liability involved when processes do not properly align with legislation. If you need any help to ensure your policies and processes are legally compliant please get in contact.

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