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Auditor's approach to assuring compliance with employment standards

There is a growing need for organisations to demonstrate compliance with employment standards in New Zealand.

The role of the auditor

Compliance with employment standards and minimum employment rights is a legal requirement and a starting point for fairness in the workplace. 

Employers who fail to comply with minimum employment standards risk legal sanctions, such as:

  • infringement notices for less significant breaches
  • financial penalties and being banned from supporting visas for migrant workers, for serious breaches.

There is a growing social, business, and investor expectation of fairness in the workplace and throughout supply chains. This means the cost of non-compliance for a business can also include loss of customers, loss of contracts, unhappy investors, and exclusion from access to overseas markets. 

This growing awareness is increasingly requiring organisations to provide assurance that they, and the businesses they engage with, are respecting their employees minimum employment entitlements. 

Audit, assurance, and certification services  

Many auditors, and providers of assurance and certification services, offer non-financial audits. These may reference environmental, social, and governance (ESG) type considerations, with the social aspect often focussing on the United Nations’ guiding principles on business and human rights. However, it is often the case that they lack fundamental checks for compliance with employment legislation.

Guiding Principles on Business and Human Rights – United Nations (external link)

Guidance for auditors

This guidance will help auditors to design and enhance their employment compliance audit/assurance/certification services and programmes. It provides a focus on:

  • complexities that increase the risk of non-compliance
  • aspects of employment standards that, when not followed, can do one or both of these things:
    • signal wider non-compliance
    • seriously harm employees or a business’s financial viability.

Please note this guidance is not a list of employment standards:  

Learn about employment rights and responsibilities

Self-assessment guide for employers [PDF 934KB]

Self-assessment checklist for employers [PDF 654KB]

You may wish to use this information to inform the content of any audit flowcharts or checklists you use. 

If you find failings, refer to your organisation's internal policy in respect of next steps i.e. investigate further, and make recommendations to management in respect of rectification and remediation. We anticipate this would be based on the severity of the issue and for management to develop an action plan in response. 

We expect standard audit approaches will be used in regard to the following:

  • sample sizes
  • conflict of interest identification and resolution for the person(s) conducting the audit
  • the use of privacy waivers and policy around this work, as the auditors will be accessing employees’ personal data.

Key elements of an employment standards compliance audit

Record keeping 

Keeping written or electronic employment records is a legal requirement. Employers who fail to do so cannot provide assurance that they are providing minimum entitlements or complying with other employment standards.

The key here is the employer’s understanding of the essential record keeping requirements and how they meet those requirements in a practical way. This is not just a matter of investing in payroll software. Many failures involve incorrectly set up, operated and automated payroll software.

Individual employment agreements 

The requirement to have written employment agreements is a basic foundation for employment relationships. The absence of written agreements is a red flag and may indicate the employer is non-compliant in other key areas of employment standards. 

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


Many aspects of the payment of wages and salaries are governed by employment standards. Those to which the Labour Inspectorate attaches some priority, and can be serious breaches if found to be non-compliant include:

  • payment of at least the minimum wage for each hour worked
  • deductions from wages (legal, consented in writing and reasonable)
  • no premiums charged to gain or retain employment.

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

Holidays and leave  

This is an area where compliance can become complicated, especially when the hours of work are variable or the pay structure is not straightforward. Areas where there are common failures include:

  • entitlement to 4 weeks’ annual holidays
  • calculating annual holiday pay
  • entitlement to public holidays and determining the correct payment for them
  • provision of sick leave and other leave entitlements
  • correctly applying relevant daily pay or average daily pay.

See the law on annual holidays – New Zealand Legislation (external link)

Key compliance requirements for employers  

What auditors need to look out for. 

Wage and time records

Check that employers keep wage and time records for 6 years, and that the records contain all the required information. 

Holiday and leave records 

Check that employers keep holiday and leave records for at least 6 years, and that the records contain all the required information.

Individual employment agreements

Check that employers offer individual employment agreements in writing – and that the employee receives a copy, and the business keeps a copy. Employment agreements must not contain anything contrary to the law.

Mandatory clauses 

Check that individual employment agreements contain mandatory clauses.

Minimum wage

Check that employers pay at least the applicable minimum wage.

Wages without deduction

Check what deductions employers are making. Any deductions that are not legally required must have the employee’s written consent.

Charging employees for jobs 

Employees must never have to pay to get or retain a job.

Annual holiday entitlement  

Check how annual holiday entitlements and pay are being calculated.

Public holiday pay

Check how employees are being paid for public holidays.

Other risk considerations

Employment status

Employment standards apply only to employees and not to genuine volunteers and self-employed contractors.

Sometimes employees are incorrectly classified as contractors (or volunteers) and do not receive their minimum employment rights. This can be done either by lack of knowledge, or on purpose through sham contracts, which are intended to avoid employer responsibilities and costs. In other cases, there may have been an intention to enter into a contractor relationship where the real nature of the relationship is employer and employee. 

Where an audit finds workers, classed as contractors, performing the fundamental work of a business, the real nature of the relationship should be tested. Conduct tests to ensure that the right type of relationship is applied:

  • intention test
  • control vs independence test
  • fundamental/economic reality test

Learn about the relationship tests 

Employment law does not include a prescriptive definition for contractor versus employee, but guidelines have developed out of court decisions. 

Find out how contractors and employees are different

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Page last revised: 23 August 2023

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