Averaging of Pay in the Rural Sector – Timesheets are Essential

A topical issue for many farmers is the common industry practice of averaging wages for employees over the season.

There are many reasons why averaging of hours is preferred.  It is difficult to anticipate the hours that an employee will spend working because of the seasonal nature of farming.  By paying a salary based on average hours over the year, the employee is receiving a constant flow of income and it is easier for both employer and employee to budget.

An issue with this practice was brought to light in the 2013 case of Whyte v Labour Inspector, Kate Feeney for the Ministry of Business Innovation and Employment.

A brief summary of the facts of this case are:

1. Mr Almao “the employee” was a farm assistant for the Whytes “the employer” for a period of approximately 2 years from 2010 to 2012.
2. Towards the end of his employment, the employee lodged a complaint with the Ministry of Business Innovation and Employment “MBIE” concerning his rate of pay.
3. The labour inspector, Kate Feeney, undertook an investigation into whether there were adequate wage, time and leave records, whether the employee had received the minimum wage, and whether he was owed any arrears of wages.
4. The labour inspector found that the employer had not kept adequate wage, time and leave records and was in breach of payment of minimum wages and therefore the employee was owed arrears of wages.
5. Demand was made for arrears of wages.
6. The demand notice was challenged by the employer who claimed that weekly wages paid below the minimum wage should be offset against wages paid during the “dry season” where the employee was paid above the minimum wage.
7. The employment agreement did not detail the specific hours the employee was required to work but provided that there would be variable hours of work depending on the season.
8. The Employment Relations Authority, in hearing the dispute, considered a Court of Appeal decision in IDEA Services v Dickson where it was determined that the frequency as to when an employee gets paid is a matter of agreement between the parties but that the employee must be paid at least the minimum wage associated with the relevant time unit.
9. It was found that an employer is not able to use salary provisions in an employment agreement to average out the payments for weeks requiring less work against weeks where hours of work are of a duration that the payment for that pay period is below the minimum rate.
10. In this case, during the dry season, the employee was paid above the minimum wage but for all other weeks, his pay rate was less than the minimum wage because of the increased hours worked during that period.
11. An award was made for payment of the difference between the amount of salary received and the relevant weekly minimum rate plus the hourly rate associated with those weeks above 40 hours per week.

The current minimum adult wage (with some exceptions) is $14.25 per hour or $114 per day and $14.25 per hour worked in excess of 8 hours.  Any KiwiSaver contributions must be in addition to the salary or wage.

On 26 June 2014, a change was made to the Minimum Wage Order allowing a fortnightly minimum wage.  This means that for any fortnightly period, wages can be averaged over both weeks. Full-time employees on a salary must be paid a minimum of $1,140 per fortnight for 80 hours worked and an extra $14.25 for each additional hour worked in that fortnight.

Non-compliance can result in a fine of $10,000 for individuals and $20,000 for companies.

MBIE has been visiting farms to monitor compliance with the Minimum Wage Order and it is therefore important to ensure that:

1. Any employee on a salary is paid for the hours worked during any fortnightly period; and
2. Proper time, wage and leave records are kept.

Timesheets are essential.  It is recommended that employees take responsibility for completing their own timesheets.  It is good practice to include, in your employment agreements or farm policy manual, an obligation for the employee to complete timesheets.  There are a number of timesheet templates available from industry associations.

If you have any questions about this or any other employment issue, please call one of the team at BlackmanSpargo.

Written by Sandy Van Den Heuvel