9.05.2018

Payroll 2 – The Labour Inspectors are Coming

What are Labour Inspectors meant to do?

Why are they coming?  Is there some new law?

If we look hard enough the answer is probably ‘yes’, there is some newish law.  A small amendment among a number of other ‘tweaks’ to the Employment Relations Act 2000 came into force 1 April 2011.  It set out the “Functions of Labour Inspector”.

Since then, and putting aside its own payroll problems, the Ministry of Business Innovation and Employment (MBIE) has started to get extremely busy.  Labour Inspectors have always had a responsibility for employer compliance with the minimum code (which stretches across a range of legislation), and the compliance issues have largely related to the Minimum Wage Act 1983, the Wages Protection Act 1983, the Holidays Act 2003 and aspects of the Employment Relations Act 2000.  We are not sure whether those amendments on 1 April 2011 spurred MBIE into action or not.  However, what we can say is that Labour Inspectors have been around for a very long time, and in all of our previous dealings over more than 20 years both with Labour Inspectors directly and, primarily, in advising clients who have been contacted by Labour Inspectors, our observation has been that the Labour Inspectors have always been reactive.

Historically, Labour Inspectors could well have been proactive, but if they were, we were unaware.  All of that has now changed.  Over the last year we have had an increasing number of clients contacting us who seem to have received, unsolicited, what appears to be a relatively standard letter from MBIE Labour Inspectors advising that they are conducting audits across particular industry sectors, or in certain geographical areas.  In addition, some months back, MBIE were advertising for additional Labour Inspectors to join a “specialist” team specifically to audit payrolls.  From the increased media comment over the last fortnight following on from MBIE’s own issues, it appears that team is up and sprinting.

So while it might seem ironic that the Ministry responsible for policing the payroll appears to have tripped over its own feet, that will not stop the relentless march of the Labour Inspectors.  The newsflash is that Labour Inspectors will be ‘coming to a town near you’, and it is increasingly likely that your payroll will be under the microscope.

What are Labour Inspectors meant to do?

Labour Inspectors have five key roles.  The first two of these should focus the attention of any employer:

  1. The first is to determine whether “the relevant Acts” have been complied with.Labour Inspectors have a statutory right to make a decision about compliance.  If that decision is that you do not comply, the Labour Inspector can issue an improvement notice and if you do not like that decision then you may object to that notice in the Employment Relations Authority.
  2. The second requires Labour Inspectors to take “all reasonable steps to ensure” that the relevant Acts are complied with.The fact that “reasonable” is prefaced by the requirement of “all” may well be why Labour Inspectors have become proactive and are becoming increasingly so.  It is a high standard!Now that you have stopped breathing completely, the next two Labour Inspector functions should go, at least some way, toward alleviating any anxiety.  Labour Inspectors are to:
  3. “Support employers, employees and other persons in complying with the relevant Acts by providing information and education”; and
  4. Prevent non-compliance by “assisting employers to implement systems and practices that comply with the provisions of the relevant Acts”; and
  5. Provide other services to assist employers and employees to resolve employment relationship problems arising under the relevant Acts, i.e. a resolution role.

In addition, the employment standards amendments that came into force on 1 April 2016 adds monitoring and enforcing those standards to the list of functions.

Labour Inspectors have extensive powers including the right to enter premises, demand the production of documents and records, and question any person.

What should you do?

Don’t panic!  It is a good idea to take legal advice about compliance with the legislation, particularly the Holidays Act 2003.  The starting point is the law because that is what you need to comply with.  Only lawyers are qualified and certified to give legal advice.

Once you have taken that advice, test it against your systems and processes.  Remember that the Holidays Act determines annual holidays in weeks and other leave in days, not in hours.  In doing so it often reduces 52 weeks of payments down to weeks for annual holidays, and days for public holidays, sick and bereavement leave.

The Act does not reduce sums down to hours and then multiply them back out again to get to a day or a week.  Starting with hours is working from the wrong end and may well be asking for trouble.  You may get the right answer where hours and pay are stable but you have a very good chance of getting it wrong where they are not.  If you think you could have an issue in your business, now is probably the time to get advice and fix it up – before the labour inspectors knock on your door.

Do you need expert legal advice?
Contact the expert team at Hesketh Henry.
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Media contact - Kerry Browne
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