The Government recently announced that the Minimum Wage will increase to $15.75 from 1 April this year. That’s a 50-cent increase from where it was, which is in line with the level of increase over the past several years.
People’s opinions differ over whether the Minimum Wage is effective, or at least whether the level of the Minimum Wage is set high enough to sustain the average worker in today’s economy.
It may not be particularly high in your view, but even so, there are plenty of employers who try to skirt around it. Further still, there are employers who are unwittingly failing to pay the Minimum Wage as the law requires.
Here is a brief rundown on what the Minimum Wage is and how to ensure you comply.
WHAT IS THE MINIMUM WAGE?
The Minimum Wage order refers to the order made by the Government that employees be paid at minimum level of pay for work that they do. It is a baseline beneath which employers are not allowed to go in terms of wages or salaries for their employees.
As from 1 April 2017, the Minimum Wage is expressed as:
- $15.75 per hour for employees paid by the hour;
- $630 per week for employees paid by the week, who must also get paid $15.75 for every hour worked in excess of 40 hours each week; and
- $1,260 per fortnight for employees paid by the fortnight, who again must get paid $15.75 for every hour worked in excess of 80 hours in a fortnight.
(The level is lower for some employees who are less than 20 years of age and who are undertaking work training or just starting out. They get 80% of the adult minimum wage for a limited time.)
WHO GETS THE MINIMUM WAGE?
Every person who is employed to work in New Zealand must be paid at least the Minimum Wage for every hour, week, or fortnight that they work, as the case may be.
It applies in general, regardless of whether a person is paid by salary or hourly rate.
When someone is paid by salary, you must divide up the hours they have worked to check if they are paid at least the Minimum Wage.
Contractors are excepted
The Minimum Wage does not apply for any staff you engage to work as contractors. A person who undertakes work as an independent contractor is not an employee and therefore does not have to be paid at least the Minimum Wage.
But beware: not all those who are called contractors are actually contractors – they may be employees in truth. If that is the case, then they do need to be paid at least the Minimum Wage, otherwise you may face penalties and a large amount of back pay (see below).
CAN’T BE AVERAGED OUT
It may be tempting to think that while you don’t pay an employee the Minimum Wage for every hour worked, if you pay them much more than the Minimum Wage at other times, then you are doing your duty. Isn’t that logical?
You may think that is fair, but that’s not what the law says. You can’t comply by averaging out the payments across all the monies you pay an employee.
An example of a salaried employee
It may be helpful to consider an example. Think of a salaried employee whose hours fluctuate from week to week. Some weeks they work 40 hours, but in other weeks they may work 70 hours. Seasonal workers who pick fruit on farms or work in the meat industry may fall into this category.
In the weeks where they work 40 hours, their salary may be much higher than the Minimum Wage. But it may be lower in other weeks where they work overtime.
If you add up all the hours they work and divide them across the number of weeks in a year, you may, for example, find they work 50 hours a week on average.
To comply with the Minimum Wage order, you would need to pay them at least a salary of $40,950 per year ($787.50 per week). If you already pay them a salary of $42,000, then you may think you are complying.
But that is not how the law works. To comply, you must pay the employee at least the Minimum Wage for every hour worked. That means in the weeks where they work 70 hours, they must get at least $1,102.50 per week (which equates to a salary of at least $57,330).
Now you can see that their current salary of $42,000 is well below what is adequate. You must top them up for that week of overtime so that they get at least $15.75 per hour worked for that 70-hour week.
Hourly paid employees
Another example is where hourly paid staff are paid different rates per hour for different types of work, or are paid for piece-work. Each hour, week, or fortnight must be paid at the rate expressed in the Minimum Wage order. It is not okay to average out all their different payments by the number of hours.
You must look at each hour in isolation and ask: are they getting the Minimum Wage for this hour?
PENALTIES FOR FAILING TO PAY
We are starting to see that significant penalties are handed out for employers who do not comply with basic rights of employees, including the right to receive at least the Minimum Wage.
An employer is liable for a penalty of up to $20,000 for each breach of the Minimum Wage Act.
The trend appears to be that the Employment Relations Authority and the Employment Court will now be much tougher on employers who do not comply.
The Minimum Wage is a basic right of all employees that can be firmly penalised if not complied with.
It pays to look at your employed staff and consider how much you are paying each of them for the hours they work. Particularly if you have variable hourly rates or weeks where employees work significant overtime, even if they are on salaries.
For employees who have not been paid correctly, take steps to pay back to them what they are owed as soon as you can and put in place systems to ensure it doesn’t happen again in the future. Finally, ensure that from 1 April this year you are paying your staff in accord with the new rate.