A recent case in the Employment Relations Authority saw an employer ordered to pay $12,000 in penalties to an employee stiffed out of annual leave and payment for public holidays, putting other employers on notice that these practices will not be tolerated.
The question remains, however, whether even higher penalties are necessary to act as a real deterrent.
In the February 2019 case of May v Solidbuilt Construction 2017 Limited, the employer was ordered by Authority Member Anna Fitzgibbon to pay $12,000 in penalties to an employee for breaches of the Employment Relations Act 2000 and the Holidays Act 2003, in addition to $5000 net in unpaid minimum entitlements.
While some may consider this a stiff penalty, the maximum penalties for the 11 breaches in this case totaled $220,000. It is arguable, therefore, that the penalties ordered may be insufficient to disincentivise unscrupulous employers from denying employees minimum entitlements (such as holiday pay and pay for public holidays) or that it is unlikely to dissuade rogue employers from employing people “under the table” given the comparative savings may be far greater.
In Solidbuilt, the employer’s sole director and shareholder, Mark Robertson, employed a builder to work on his house in August 2017. Unbeknown to the employee, the PAYE that was being deducted from his pay was retained by Robertson, and not paid to IRD. The employee only discovered this after the employment relationship ended in February 2018.
Where an employer deducts PAYE but fails to pay it to IRD, the employee is put in a very difficult position, as the IRD records show that the employee has not been paying tax at all during the period of employment (despite the fact that the employee has already paid tax via the deductions from his/her pay). Employers need to be aware that deducting PAYE from an employee and not paying it to IRD is a breach of the Tax Administration Act 1994, which could see an employer fined up to $50,000 and sentenced to a term of imprisonment up to five years. Employees concerned about whether their employer is paying PAYE to IRD, can go online to myIR and create a login to check.
The authority, like most other forums classified as tribunals in New Zealand, is not a court of record. This means that evidence is not recorded. There is no transcript to refer back to and no access to notes taken by the authority member during an investigation meeting. Further, section 174E of the Employment Relations Act (referred to in virtually every authority determination) does not require a determination to set out all of the evidence and submissions received. This means, the only parties who hear and see all the evidence are those involved (including representatives) and any members of the public or media who choose to attend (which is rare).
At times, it can be confusing for those who do hear all the evidence to understand why some evidence is included in a determination, while other evidence is omitted. For example, it seems incongruous that Mark Robertson’s failure to register as an employer and register his employee with IRD, was held to be due a three to four-week delay in the registration process, attributed to IRD industrial action. However, the evidence filed by Robertson (but omitted from the determination) shows that he did not even attempt to register the employee with IRD until July 2018. This was nearly one year after the employment relationship commenced and some five months after it had already ended. It is arguable that this was done only when litigation seemed increasingly likely.
Likewise, in relation to the employer’s failure to pay minimum entitlements, Robertson was credited with the fact that he had paid an amount of money into his solicitor’s trust account to cover this, indicating an intention to pay. It is difficult to reconcile this, however, given the evidence filed by Robertson clearly showed he did not take this step until seven months following the termination of employment, and three weeks after the employee had already filed proceedings with the authority. This action was taken due to Robertson’s ongoing refusal to pay these long-overdue entitlements.
As this case progressed, what became increasingly apparent is the risk that such practices create for unwary employees and other businesses. When, in a case such as this, an employee is not registered with IRD, it is highly likely that the employer is not paying ACC levies either, so potentially any accident (a distinct possibility in construction) may not be covered.
For legitimate businesses, who comply with the law (by paying minimum entitlements, PAYE and ACC levies), this comes at a cost. Yet those legitimate businesses may be forced to compete when quoting for work with rogue non-compliant businesses, which creates a very unfair playing field for those employers who elect to do the right thing. The system should reward and encourage compliance, rather than non-compliance.
It was unclear from the evidence why the employee in this case was the only employee, and all other workers engaged on any of Robertson’s 27 properties were described as “contractors”. Even then, Robertson acknowledged under oath that there were no written contracts, no invoicing and everyone was paid in cash. Such practices must make it very difficult for IRD to establish whether the correct amount of tax and GST are being paid, or indeed, if it is being paid at all.
Businesses operating outside the law harm both employees and competing legitimate businesses who comply with the law. We can all help to stamp out these practices by only accepting quotes from companies that are playing fair, only paying invoices that clearly show a GST registration/component and dobbing in those we suspect of operating in the “black economy”.
(Note: the author represented the employee in this case).