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Parliament has been debating the merits of the Wage Theft Bill since April 2023. The Bill progressed to the final stages of the parliamentary review process recently and will now move to its third and final reading before receiving royal assent and being enacted into law.

This bill clarifies that it is considered theft when an employer does not pay an employee their full legal entitlements, which may include unpaid wages, unpaid overtime, holiday pay, or paying less than minimum wage requirements. Under the Wage Theft Bill, employers may face criminal penalties for wage theft, on top of other existing remedies that may be sought through the employment courts.

Labour MP Camilla Belic, states “If employees steal from their employer, the first thing that employers do is go to the police, and that employee suffers the full force of the law if they are found guilty for that offence.  There is no justification for having a different rule apply to employers than it does to employees. It’s not right, and this bill will make it right.”

Intentional or unintentional breaches

An important factor to note is that the Bill relates to intentional underpayments, not unintentional mistakes or administrative errors. That means, for example, if an employer accidentally underpays an employee (and can prove that it was a mistake) it will not be subject to the Crimes Act.

However, the employer may still be subject to fines and other consequences through the Employment Relations Authority and the employment courts. Each case will be different, and for that reason it’s important you seek professional advice where necessary.

Bigger penalties and prison time for wage theft

The Wage Theft Bill introduces strict penalties for businesses found guilty of intentional wage theft. The maximum (criminal) penalties for wage theft are below:

• If the employer is an individual, the maximum penalty would be 1 year’s imprisonment, a fine of $5,000, or both.
• In any other case, the maximum penalty would be a fine of $30,000.

This actually happened

It was the view of one Employment Relations Authority labour inspectorate last month, who enforced a $30,000 fine on a Waikato dairy farmer for underpaying their employees, that “[the respondents] incomplete and inconsistent approach to record-keeping undermined their ability to effectively enforce employment standards and placed employees at a disadvantage.”.

Breaches like this have been dealt with by the Employment Relations Authority and employment courts for a long time. But under the Wage Theft Bill, may now result in additional criminal sanctions.

This case is just one example of how wage underpayments can occur, and the massive impact they can have. But wage underpayment penalties don’t discriminate – whether you’re in agriculture, hospitality, retail or another industry, past rulings show just how easy it can be to end up in hot water.

What do you need to know?

The consequences for underpaying or failing to pay employees comes with serious consequences for Kiwi businesses. Let’s look at how you can avoid any costly mistakes, from making sure your record keeping is up to scratch, to streamlining payroll processes and more.

1. Review your payroll set up

Regularly reviewing your payroll system and processes can help identify potential underpayments or miscalculations. Employers should ensure that all employees receive correct wages, overtime pay, and entitlements in accordance with the law.

Pay special attention to ensuring all staff are being paid the correct minimum wage, receiving holiday entitlements, sick leave, public holiday pay, overtime pay, and other entitlements.

Every year there are changes to payroll related legislation.  Your payroll administrator needs to ensure they are up to date with the current legislation and how to interpret the rules and put the critical thinking around it.  Have they had any formal training? 

2. Checks and balances

Regular internal audits can help you identify payroll mistakes before they become serious issues. It’s a good idea to schedule regular audits of your internal processes, particularly with regard to payroll, to catch any mistakes before it’s too late.  Having payday audits, as well as monthly, quarterly or six monthly checks is essential.

3. Maintain detailed records

Keeping accurate records of hours worked, pay rates, tax deductions, and leave entitlements is essential and a legal requirement. Employers must retain these records for at least six years to protect themselves in case of an audit.   Do you or your payroll administrator know what records you need to keep?

4. Train the team and the business owner/management

Many wage underpayment cases occur due to a lack of knowledge rather than deliberate wrongdoing. Providing training for payroll teams and management on employment laws and wage requirements can reduce the risk of accidental non-compliance.

Typically we learn payroll one of two ways – inheriting outdated data via the previous payroll person that is handed down, and handed down, and handed down…, or by learning software processes, which conceal the underlying calculations and legislation. So, if we can’t see what is underneath, we can’t apply the critical thinking to payroll, which could flip the whole iceberg on its head!  Then you have nothing to stand on and the Labour Department won’t give you a life buoy. So, we need to learn how to swim.

The Small Business Training Hub offers practical and insightful training courses to keep you up to date with legislation and teaches you how to stay compliant.  87% of our attendees stated that anyone involved in employing or paying staff should do this training.

5. Use a software solution

Any manual process increases the risk of human error. Employers can minimise mistakes by using modern payroll software that automatically calculates wages, tax deductions, and entitlements.   You still need to know how to check the system regularly and we teach you this in our Payroll Compliance Made Easy training.

6. Seek professional advice

Employment laws can be complex, and staying up to date with changes is critical. If you’re ever unsure of your employer obligations, seek professional advice.   If you would like some recommendations, let us know below.

Compliance giving you a headache?

We have you covered.  We know laws like this can make it feel like you’re navigating a minefield. The thing is, most employers have the right intentions when it comes to paying employees – and yet, mistakes can happen. That’s especially true if you haven’t had any education in payroll rules and calculations.

The Ontrack Payroll HQ team are here to help with our services –

• Done For You – we can ease the payroll pain and take care of your payroll for you
• Done With You – hold your hand support services to help you get it right
• Training – provide customised training to you or your team around all thing’s payroll