Auditor's approach to assuring compliance with employment standards

• Ask the employer about who keeps the records and how the wages and time records are kept.
• Review a sample of the records consisting of different types of employees such as employees working fixed/set hours and days, employees on flexible and variable working patterns, and terminated employees.

See the law on wages and time records – New Zealand Legislation(external link)

• assuming that the accountant (or similar) is keeping the required records
• assigning the role of record keeping to an untrained or unsupported person
• keeping wage records but not time records
• entering the hours of work as a total amount and destroying the detailed time records.

• Ask the employer about who keeps the records and how the holiday and leave records are kept.
• Review a sample of the records consisting of different types of employees.

See the Holidays Act – New Zealand Legislation(external link)

• assuming the use of a payroll system means that all recording requirements are being met
• failing to update the payroll system when employee conditions change, for example., when hours increase
• taking a ‘set and forget’ approach to record keeping
• assigning the role of record keeping to an untrained or unsupported person
• recording payments when leave is taken but missing off leave balances
• failing to clearly record the earning of, and balance of, alternative holidays.

• Confirm with the employer that these are provided and retained and ask what system they have in place for offering and retaining agreements.
• Ask some employees if they were offered and provided with a copy of their individual employment agreements.
• Select a sample from a list of employees and witness that there are written employment agreements.

See the law on individual employment agreements – New Zealand Legislation(external link)

• assuming an ‘old school’ approach of verbal agreement is sufficient
• assuming that the rules are different for ‘casual’ employees
• assuming the rules are different when employing friends and family
• failing to create and keep employment agreements during busy periods
• failing to include a job description and all the mandatory clauses.

• Review a sample of agreements.
• Ask a few employees who their employer is and if the job description, place and hours of work, and so on match reality.

See the law on individual employment agreements – New Zealand Legislation(external link)

• failing to accurately reflect the agreed hours in the individual employment agreement
• failing to include a clause on paying time-and-a-half for work on public holidays
• failing to include a clause covering restructuring
• failing to include closedown clauses when the business actually has a closedown period
• including clauses that cancel out holiday entitlements, such as limiting the carry-over of unused annual holidays
• requiring someone to be available for work without paying them to be on standby
• using a trading name instead of the employer’s legal name.

• Ask the employer if they know what the current minimum wage rates are.
• Ask the employer about how pay is calculated – hourly rate, salary, commission, piece rates, allowances, and so on.
• Ask the employer about hours of work and what work employees complete in that time.
• Calculate the hourly pay per hour if the employee is paid piece rates.
• Ask some employees about their hours of work, what work they complete in that time, and if they are paid for all hours worked.
• Review samples of wages and time records.

See the law on wages and time records – New Zealand Legislation(external link)

• Failing to record all hours of work as work. Examples include deliberate exploitation, travel time, sleep overs, work required training, and team meetings prior to and after shifts. Another example is asking employees to start work 15 minutes earlier to set up shop or to finish later to clean up, but not paying them for it.
• Failing to pay a new employee or paying them a reduced rate while they are receiving on-the-job training.
• Allowing a salaried employee to work long hours for a period to the point that they are not receiving the minimum wage.
• Failing to top up pay to the minimum hourly wage when required, if workers are on piece rates.
• Failing to pay workers for all their hours worked.
• Failing to pay workers all their hours while on training.

• Ask the employer if there are deductions made from employee wages. If so, check what they are for. If other than for legal purposes such as tax, is there a written consent from the employee?
• Ask some employees if deductions have been made from their wages and if yes, have they given a written consent to do so?
• Review a sample of wages and time records and any written consent. Include some employees who have ended their employment.

• making unreasonable deductions for business costs – examples of what is unreasonable include deductions for breakages or theft by customers, recruitment expenses, and personal protective equipment required to perform the job
• failing to get employees’ written consent to make a deduction
• deducting wages when employees leave without working out their notice period
• requiring employees to pay for personal protective equipment.

• Ask some employees if they have to pay any money to get or retain their jobs.
• Check a sample of employment agreements for any disguised premiums, such as unlawful bonds or penalty clauses.

• making employees pay to get or retain a job
• including clauses in employment agreements that require employees to repay costs when their employment ends, such as costs for on-the-job training.

• Ask the employer about their understanding of employees’ entitlement to 4 weeks of annual holidays.
• Ask the employer how they calculate annual holiday pay.
• Check a sample of holiday and leave records to establish if it meets the legislative requirements. Include records for employees who have ended their employment and those with variable working hours.
• Check if commission has been included in holiday pay if employees receive commission.
• Check if staff are being paid 8% instead of holiday pay. If they are, check if the practice meets the conditions for this to happen. For example, do varied days and hours of work make it too difficult to calculate annual leave? Do fixed-term employment agreements last fewer than 12 months?
• Check if the right methodology is being used to calculate annual holidays. Annual holidays must be paid at the higher of:
  • the average weekly earnings, meaning the employee’s average weekly earnings for the 12 months just before the end of the last pay period before the annual holiday
  • the ordinary weekly pay, meaning the employee’s ordinary weekly pay at the beginning of the annual holiday.

See the law on calculating annual holiday pay – New Zealand Legislation(external link)

• Assuming payroll software calculations are correct – most payroll systems have a process of ‘accruing’ annual holidays based on the hours employees work which is based on formula of 4/52 for each hour worked from the start date of employment, rather than providing 4 weeks entitlement or 4 weeks’ annual holidays after 12 months of service
• failing to set up payroll software correctly
• assigning the role of payroll to an untrained, unqualified, or unsupported person
• using only the average weekly earnings or the ordinary weekly pay – not the higher of the 2 as required by the law
• failing to give 4 weeks leave to employees with variable working patterns
• failing to increase holiday entitlement when employees increase their hours of work
• failing to include all applicable gross earnings in holiday calculations.

• Ask the employer to explain their understanding of the public holiday entitlements and how they are applied in their business.
• Ask employees if they are given a choice whether to work on public holiday (if not as part of their contractual arrangement).
• Review a sample of records to look at the patterns of work around public holidays.
• Check if employees are receiving the right entitlements when working on public holidays.
• Ask employees how public holidays are treated in regard to payment for working, and entitlement to pay if not worked.
• Check a sample of records for how relevant daily pay is calculated.

See the law on holiday and leave entitlements – New Zealand Legislation(external link) 

• believing ‘casual’ employees (or people on rosters) are not entitled to public holidays
• failing to apply the ‘otherwise working day’ rule when employee does not work on public holidays
• incorrectly determining the ‘Mondayisation’ of a public holiday
• incorrectly determining ‘relevant daily pay’ – for example, employers may fail to include regular overtime in relevant daily pay
• failing to give employees a choice about working on public holidays
• failing to pay time-and-a-half, or failing to give employees an alternative holiday when they are entitled to one
• changing rosters to avoid paying holiday pay.