Why is MBIE Focusing Their Employment Audits on Dairy Farmers?

We often see articles in various media about breach in employment law within the Dairy Farming sector. So why does it make more headlines than other industries? Is the dairy industry being singled out and picked on unreasonably? To answer this, we need to understand the relevant legislation and then identify what is peculiar about the dairy industry that makes it a “target” for MBIE auditors.

The relevant legislation are the Employment Relations Act 2000 and the Holidays Act 2003. Under the above legislation you must be able to show that you’ve correctly given your employees all minimum employment entitlements such as the minimum wage and annual holidays.

A large proportion of employees in the dairy industry are on salaries, rather than on wages. You would think that being on salary is easier as all you need to do is pay the employee a fixed amount and the job’s done. This is the case for office workers as they often work the same hours each week and, as an example, don’t work statutory days. Contrary to this, dairy farm employees have varying working hours during the season and within pay periods as cows need to be milked daily. Because of this, an employee ends up having to work on a statutory holiday such as Christmas Day. In addition , there is often changes to the roster pattern during the season which results in a complex employment remuneration web to weave through.

  1. The salary divided by the hours worked during a pay period can’t be below the minimum hourly rate
  2. The measure of the breach in the minimum hourly rate can’t be more than a fortnight e.g. you can pay an employee monthly, but you measure of the minimum hourly rate must be worked out on a fortnightly basis

So, let’s look at each component relative to the rules and regulations to understand the complexity it creates when an employee is being paid a salary:

1. Hours worked in a pay period

Employees that are on relatively low salaries are most at risk of breaching the minimum hourly rate. For example, an employee on $45k salary who is paid fortnightly can, at the most, work 109.89 hours a fortnight before breaching the current minimum hourly rate of $15.75. The threshold number of hours will drop to 104.9 hours when the minimum hourly rate increases to $16.50 from 1 April 2018. This variability of hours worked creates the need to be extra vigilant to ensure there is no breach of the minimum wage. However, if you have employees on high salaries, then this is unlikely to occur. The effect of any top ups has an impact on the amount that would be paid out as annual leave taken during the year.

2. Working on a statutory day

Anyone that works on a statutory holiday must be paid time and a half for the hours worked on that day, as well as receive an alternate day (except for casual employees) of leave which can be taken at a later date. In some cases, the salary could be less than normal if, for example, less than 6 hours is worked on a statutory day when the daily contracted hours are 9 hours. Again, any changes to the salary arising from adjustments from working on a statutory day has an impact on the annual leave amount.

3. The effect of rosters on annual leave

The statutory minimum requirement is 4 weeks of annual leave. The roster pattern determines how many days an employee works in a 7-day week. This is easy when someone is on a 5:2 roster, as in each 7-day period they work 5 days which equates to 20 days of annual leave (5×4=20). Likewise, a 6:1 roster is easy to calculate as 6 times 4 equals 24 days of annual leave. But what if you have variable rosters such as 8:2, 8:3 with 6:1 over calving? Or 8:2 with 6:1 over calving? It then becomes a lot harder to calculate. It is therefore imperative that you get your base correct. Furthermore, with variable and complex rosters, it is important to be able to differentiate between annual leave days and rostered days off when an employee takes annual leave. For example, if an employee who has a 5:2 roster takes 3 weeks of consecutive annual leave, it is  not 21 days of annual leave that is taken, but rather 15 days of annual leave where the remaining 6 days are normal days off.

So what peculiarities are there when an employee is paid wages?

1. Hours worked in a pay period

If you pay an employee an hourly rate (above the minimum rate) and you keep an accurate record of their hours, then there is no risk of falling below the minimum hourly rate.

2. Working on a statutory day

Anyone that works on a statutory holiday must be paid time and a half for the hours worked on that day, as well as receive an alternate day ( except for casual employees ) of leave which can be taken at a later date. Any changes to the wages arising from adjustments from working on a statutory day also has an impact on the annual leave amount.

3. The effect of rosters on annual leave

This has the same issues as if on a salary

It seems that paying someone wages rather than a salary poses fewer risks to the employer in the event of an audit. This is because it eliminates the issue of falling below the minimum hourly rate and removes the risk of overpaying employees when working on a statutory day. Although this seems more appealing to employers from a risk mitigation point of view, it may not be possible to convince employees to be remunerated that way. This is because there can be significant fluctuation in the amounts paid each time. Consequently, this variability in amounts paid may affect the employee’s ability to budget.

On the contrary, the relative certainty of amounts (not withstanding the variations discussed above) paid to the employee as a salary provides a degree of comfort to the employer as to what the employee remuneration  cost will be for the season.

Both ways of remunerating employees on the farm highlight the glaring need to have good clear records around hours worked and leave taken. It is because of these farming employment complexities that farmers are being targeted and warned by MBIE that they could face serious fines if they fail to keep accurate employment records for hours worked.


Simply using a payroll system to pay an employee will not suffice as the underlying information behind that is what MBIE are after.

Historically, not much work was done by payroll companies for dairy farmers or the Agri-sector as it was all too difficult . As a result, farmers had to adapt payroll software that wasn’t specifically designed for them, which made it difficult for them to keep accurate records. This is no longer the case as there is software available that has been built from the ground up to help farmers to be fully compliant.

  1. Ensure there is an in-built calculator that can easily calculate the number of annual leave days in a year. This is vital as this is the starting point in measuring annual leave balances.
  2. Given the complexity of rosters, ensure the system can automatically calculate the number of days off an employee will have during the season. Also ensure that the system measures what has been taken as days off against the entitlement ensuring both parties are adhering to what is recorded in the agreement ( important for salaried employees but not for employees on wages as they get paid for every hour they work) .
  3. It is important that the system is optimised for all devices so time keeping, for example, can be done with ease on smartphones, tablets, and computers.
  4. It is essential that the system allows employees to confirm their hours worked in a pay period, with no ability for the employer or employee to change the records once both parties have confirmed it. This will ensure that in the event of an MBIE audit there will be no disputes regarding hours recorded.
  5. Once the hours are confirmed, it is vital that the hours flow seamlessly into the payroll system, account automatically for any minimum wage top ups, calculate annual leave/sick leave, and so on, without further manipulation.

Therefore, for farmers to comply with the relevant employment legislation, they need to have a fit-for-purpose payroll system that considers all the intricacies of their business.