Employee salary and wages

What is pay?

Pay, also known as remuneration or total value package is an all-encompassing term for payments to an employee, in return for the value they bring to your operation. A fair value for this work is largely determined by the price points of available work elsewhere. To attract staff to your team this package must be competitive.

Remuneration is all confirmed when signing an employment agreement. It can be in the form of salary, wages and other forms of payment such as provision of accommodation, allowances, cash and non-cash items, and superannuation (Kiwisaver).

In the dairy sector, we often combine multiple forms of pay and this can lead to a greater chance of misunderstanding. Creating a schedule of pay for an employee is a good way to clarify expectations from the outset. A schedule lists all elements of the package and assigns monetary amounts for better visibility.

What is a salary?

Salary is a term used for pre-determined payments an employee will receive annually. Salaries are always calculated before tax.

Around 75% of employees on-farm are paid by salary. When paying a salary, the equivalent hourly pay rate cannot be less than the minimum wage (or for international employees the minimum threshold). Employees on a salary are not automatically entitled to be paid overtime (unless their legal minimum is breached).

In the dairy sector, it is becoming common to calculate salary based on expected hours at a competitive rate. Any extra hours worked within a two-week period are then compensated. The employee is topped up at a previously agreed hourly rate within a fortnightly period. This is very transparent and fair for both employer and employee.

For example, if someone is working 48 hours a week with an annual salary of $67,000 then the hourly rate is calculated as the following:

($67,000 salary / 52 weeks) / 48 hours worked per week = $26.84 (hourly rate)

Then for any hours worked above 96 (48 x 2) in a fortnight, the employee is topped up at a rate of $26.84 per hour.

What are wages?

Wages are different to salaries as they are calculated on the actual time worked and the pre-agreed hourly rate. In this situation, employees need to be filling in a weekly timesheet for you to calculate how much they get paid.

Employers must pay at least the minimum wage to their employees (or at least the minimum threshold for employees on work visas), and when an employee works overtime the employer must pay for that time at the same rate or a Penal rate if applicable. This will most commonly occur for staff rostered to work on a public holiday who are required to be paid time and a half for the actual hours worked (as well as a full day in lieu).

What are other benefits?

Other benefits include items that have a material value but are not cash. They include provision of benefits such as accommodation, payment of utilities, meat, firewood, and meals. These items have a more subjective value to an employee and must be negotiable. For example, provision of meat is of no great value to a vegetarian, and a single person won’t value accommodation at the same level as a family. They need to be worked through as part of the employment agreement negotiation so the employee can make a considered choice about the value of your offer.

There can also be some issues with the timing of delivery for some benefits. If, for example, a particularly warm winter occurs, and the employee doesn’t use firewood that is part of their package – how will that value be made up? Generally, the simpler the remuneration package is the better as it reduces the possibility of a grievance occurring. We recommend accommodation is always part of the salary or wages with the agreed rent then deducted.

More information about accommodation on-farm.

Reviewing pay

Review remuneration packages every 12 months to ensure they are competitive and will not lead to good employees leaving for more money or better terms elsewhere. Remember, both cash and non-cash items have value and can be included in these discussions. Discuss any changes (or the lack of) with your employee.

Meeting your legal requirements on remuneration

You must keep complete and accurate records of pay and leave taken for all employees. For employees paid by the hour, you must also keep timesheets to prove hours worked. This is highly recommended for salaried employees as well to ensure their salary remains above the agreed (or at the very least minimum) hourly wage in any pay period.

Wage deductions

Deductions from salary or wages can be necessary for a number of reasons but may only be made from an employees pay if they are:

• Required by law.
• Agreed to by the employee - and is for a lawful purpose, reasonable and agreed to in writing.
• To cover an overpayment.

The deduction must also be a fair and reasonable action given the circumstances.

Anticipating some deductions, like rent, will allow you to include appropriate clauses in your employment agreement. Some agreement templates will have provisions for such deductions. If not, you will need to develop an appropriate letter of agreement and have it signed before making deductions.

A deduction agreement needs to be very specific to the situation ( e.g. for a set rent value), and you can’t rely on a general catch-all clause such as “the employee agrees that deductions for any monies owing can be taken directly from wages”.

Please seek advice from your lawyer or Farm People Management Consultant if you are considering wage or salary deductions for property or equipment damage. Generally, an employer can only seek damages against an employee if the employee damaged company property on purpose or was negligent. If this is the case, the incident may also become a disciplinary matter.

Paying international employees

For international employees on Accredited Employer Work Visas, the pay rate is well above the minimum wage for every hour worked. The minimum threshold wage for work visas is reviewed annually, however, the threshold wage paid to an individual is indexed to a year and not required to increase if the employee stays in your employ. You will need to pay a new employee the current work visa wage. Visit the Immigration New Zealand website for the most up-to-date information on wage requirements for visas.