Claims of wage subsidy abuse hit hospo

By David Williams
Iguana Street Bar & Restaurant opened in 1996. According to the Waikato Times, original owners Jason Macklow and the late Richard Bate "transformed a huge, semi-derelict building that had once been Hannahs shoe store into one of the busiest and best-looking spots in town". Photo: Supplied

A well-known Hamilton eatery abused the wage subsidy scheme, former employees claim. David Williams reports.

Things seemed fine until the alert level dropped.

University of Waikato students Jaida Puke and Elora Kelly worked part-time for Iguana Street Bar and Restaurant, hailed as “one of Hamilton’s original restaurants”, and were being paid the wage subsidy “correctly” in the Level 4 lockdown. They weren’t concerned, at the time, about not getting payslips.

The regime changed when Level 3 arrived. While business was restricted to contactless takeaways and deliveries, staff were told: “You will only be paid for the hours that you work.”

Leading up to lockdown, the restaurant was busy, and staff were getting at least 20 hours’ work, says Puke, who’s studying law. But in Level 3, with shorter opening hours, this level of work – and pay, consequently – was not maintained.

Also, staff were required to do “unnecessary cleaning” and other “random jobs” to make up the hours, she says. “Everyone was struggling and begging for hours.”

Kelly, who’s studying biology, discovered her contract didn’t contain guaranteed hours. One week she only got five hours’ work. “I had to use my leave; I had to use sick days.”

Puke adds: “I think all of us ended blowing through all of our leave.”

The pair have left Iguana now, and the restaurant denies wrongdoing – while admitting “some contracts are extremely old and need updating”.

“It is disappointing to receive an email of this nature as we put a lot of effort into taking care of our whole team,” director Lalit Kumar and business manager Siobhan Staats write.

“We have not had any redundancies throughout either lockdown. We are proud that despite all of the challenges that Covid-19 has thrown at us, that we have managed to keep our doors open, and maintain the history of our venue as the oldest restaurant in Hamilton.”

We’ll get to the details in a moment, but first some context – because this story is about more than claims and counter-claims between employees and employers.

It is about a job-supporting subsidy concocted quickly as coronavirus took hold, involving payments in the billions of dollars, that was meant to have rigorous follow-up by several government agencies.

Last May, Auditor-General John Ryan criticised post-payment checks in the high-trust scheme as being too lightweight and recommended an evaluation. As Newsroom has reported, that “timely” review, with an approved budget of $1 million, won’t be fully finished until the end of this year. The first prosecutions were only taken last September.

Lending credence to claims initial checks were inadequate was a tax department analysis which found 8 percent of sampled businesses might not have met the required revenue drop required to qualify for the subsidy.

Some companies qualified for the subsidy because the lockdown forced them to close their doors, but, once re-opened, they went on to make bumper profits. Many big repayments of the subsidy came after public pressure – think The Warehouse Group, comprising big companies like The Warehouse, Noel Leeming, and Torpedo7, Briscoe Group and Summerset.

Others were ordered to repay by the Ministry of Social Development.

Critics of the post-payment checks worry many companies gamed the system, expecting little scrutiny of such a bloated scheme, and got away with it. Valid questions remain, like which agencies are responsible for complaints and how thoroughly are they investigated?

“This is a restaurant – where there are fewer customers there are fewer hours.” – Lalit Kumar and Siobhan Staats

Summit Hospitality & Catering Ltd, which owns Iguana, claimed $211,000 for 24 staff in the August 2021 wage subsidy, and a total of $390,000, in three tranches, since Covid began.

(Despite Covid-related uncertainties, Kumar and business partners opened a new restaurant, Paddock to Plate, in September 2020.)

Has the company been claiming the subsidy for Iguana staff and not passing it on?

Kumar and Staats’ email stated the restaurant paid more in wages than it received in subsidy at all times during Covid. “Weekly subsidy received is around $12,500, and the minimum amount in wages that we have paid during lockdown is $13,500. Average payroll is above $15,000/week.”

(There’s wiggle room in that answer, as it’s not clear if the intended recipients of the subsidy received the full amount they were entitled to. Puke said some weeks, when the wage subsidy was being claimed, she received just $100 in her bank.)

Post-lockdown, were staff working fewer hours?

“This is a restaurant – where there are fewer customers there are fewer hours,” Kumar and Staats said.

“We were ramping up for the end of year functions, and have been hit heavily by Covid. Wherever hours are available we have been giving these to staff, even when this leaves us overstaffed on shifts.”

The restaurant tried specials and deals to get people through the door, and increase working hours.

Questions were asked about subsidy payments “on a couple of occasions”, the Summit email says. It was explained that as the restaurant was open at Level 3, wages were paid by hours worked – “or no one would come to work to help us offer takeaways and pay rent”.

“Hours were rostered based on average hours worked pre-lockdown. We received many sick calls and requests to go home early anyway.”

(Puke says: “Everyone complained about hours; everybody was questioning it.”)

Iguana called MSD multiple times to ask if it was operating correctly. “Each time we called, they confirmed yes.”

Mediation with two staff was resolved, Kumar and Staats said. “They were told that they can ask for more hours and we will do our best to achieve this. Staff that asked for more hours received them.”

(Puke says the mediator didn’t properly understand the wage subsidy. When, on one occasion, she asked for more hours she was told by Iguana: “No, we are struggling to give hours”.)

Were the restaurant’s staff forced to take annual and sick leave to top up their pay?

“Staff that called in sick during Level 3 used sick leave, as they were rostered on to work. Some staff ran out of sick leave, and opted to use their annual leave to cover this instead.”

(Puke says staff were encouraged to take leave on weeks they didn’t get many shifts.)

As for staff requiring to carry out menial tasks, Kumar and Staats say cleaning is part of every person's duties in the restaurant, “as is laid out in every contract”.

Payslips were emailed, or printed and made available to staff “at all times”, Iguana said. (That jars with Puke’s and Kelly’s accounts.)

This becomes important as Puke says there were occasions of discrepancies between the amount paid and the amount for which staff were taxed.

Kumar and Staats said that’s incorrect. “Using a payroll system requires a gross amount and net amount of pay, which is what we assume they have seen and been confused by.”

The Summit email said Jaida requested fewer hours on a few occasions, and “frequently” called in sick.

“These hours were reassigned to another staff member, who was paid for these hours worked. Jaida used all of her sick leave and annual leave to cover additional sick calls.”

Asked about zero-hours contracts, the email says: “As part of the business assessment we undertook during lockdown, we acknowledge that some contracts are extremely old and need updating.

“We can assure that all part-time employees are offered multiple shifts per week that align with their average hours. We have never rostered anyone a zero-hour week unless they have requested to take leave.”

What are an employer’s obligations?

MSD’s website says companies claiming the wage subsidy must have had at least a 40 percent revenue decline, compared to a 14-day period over the previous six weeks, to qualify. They must also have tried to mitigate the revenue drop through things like engaging with their bank or drawing on cash reserves.

If they successfully jump through those hoops, their obligation is to retain and pay named employees, without changing existing obligations, like rates of pay, and hours of work.

The subsidy must be used to “support paying the ordinary wages and salary of named employees, in accordance with their employment agreements and statutory obligations”.

“Best endeavours” must be used to pay at least 80 percent of each named employee’s ordinary wages and salary, the website says. Each named employee must be paid “at least the full amount of the subsidy”.

“You will not unlawfully compel or require any of the named employees to use their leave entitlements for the period you receive the subsidy in respect of those employees.”

Work and Income’s website says: “Your employer cannot pay you less than your ordinary wages or salary unless you have both agreed to this in writing.”

Existing employment law applies and changes to contracts have to be agreed.

Pele Walker is MBIE’s national manager of dispute resolution employment. She says mediation is voluntary and confidential. “We are not able to comment on the content and outcomes of mediation. Nor do have a record of the number of mediations about the wage subsidy.”

Since September 2020, MBIE’s early resolution service has dealt with 1051 wage subsidy queries, 26 of which were referred to mediation. “This is not to say the referral was taken up by the parties.”

Here the focus shifts to government agencies, because surely rules are only as good as the organisation that enforces them.

Kelly, the biology student, fronted the first Iguana complaint which prompted an MBIE staffer to call Staats. “She didn’t really know what she was doing,” Kelly says of the resolution team staffer. “In the end she just said: ‘Okay, so this is what she said – should we resolve it now?’”

Law student Puke said a MSD staffer later characterised the allegations as “concerning” and said an investigation would be opened. But this was cold comfort to staff who were struggling to pay their bills.

MSD eventually kicked the complaint back to MBIE, which, Puke said, pushed to resolve the matter again. On November 9 she emailed her complaint to MSD, but didn’t hear back.

“It was just frustrating,” she says. “There were days I would leave work early, because I was so angry with [Iguana]. So, yeah, overall I’d say MSD and MBIE's conduct was crap.”

The government systems “let us down at pretty much every single process”, she says – which is why she went to the media.

MSD’s group general manager of client service support, George Van Ooyen, confirms it received a complaint about Summit Hospitality & Catering Ltd.

“All wage subsidy complaints we receive are assessed by our integrity team to determine what further action may be required, and we want to assure Jaida and her colleagues that their complaint is being followed up.”

Receiving a complaint doesn’t necessarily mean there has been wrongdoing, he says.

“We cannot comment on whether specific individuals or organisations have been, or are currently, under investigation due to the potential impact this could have on our legal obligations and the integrity of our processes.”

Van Ooyen says complaints about employers claiming wage subsidy money they weren’t entitled to are assessed by MSD, and action is taken if necessary.

“However, if an employer is entitled to receive the wage subsidy but is alleged to have breached employment law by altering the terms of existing employment agreements or incorrectly passing on the subsidy to staff, then these complaints are generally handled by MBIE.”

Gay Cavill, Inland Revenue’s media principal, says investigations as to whether the subsidy’s passed on to employees rests with MBIE.

Confronted with criticism by Puke and Kelly – that the complaints process is a nightmare and ineffective at preventing misuse of the subsidy – MBIE said it was unable to comment on specific investigations. It deferred to MSD as the lead agency for investigating wage subsidy complaints.

Nikki Sumner, acting general manager of employment services, provided a generic breakdown of the complaints process and employer obligations.

Employment New Zealand, which is part of MBIE, receives wage subsidy complaints, which are then assessed for misuse or non-payment. “Where appropriate these are escalated to the Ministry of Social Development who work on cases that require further investigation, such as where fraud is suspected,” Sumner said.

Avenues for complaints include “early resolution”, a free phone-based service, formal mediation, or pursuing the case at the Employment Relations Authority.

Van Ooyen, of MSD, said its “integrity processes” had been “very effective” in dealing with complaints. As at December 17, the Ministry had completed completed 14,030 pre-and post-payment integrity checks and reviews. (These were labelled audits until the Auditor-General objected.)

In total, 1120 cases had been referred for investigation, of which 510 were resolved and 610 are underway. Wage subsidy repayments were $781 million.

Total payments for all Covid-related support schemes, including the short-term absence payment, and leave support, reached $18.95 billion on December 10.

“To be fair, there are probably a percentage of employers across all sectors who would take advantage of that.” – David Williamson

Unfortunately, the hospitality industry is known for cowboys – a significant minority of operators who don’t treat staff well.

An Auckland University of Technology survey of 400 hospitality staff, published as the Covid traffic light system bedded in, found 18 percent of staff didn’t get paid minimum wage, most had no proper breaks, 16 percent had no written agreement, and about half experienced or witnessed bullying or harassment.

Spread that across the industry and that’s thousands of workers not getting statutory minimums.

So the situation, as described, at Hamilton’s Iguana restaurant is as disappointing as it is familiar to David Williamson, senior lecturer at AUT’s School of Hospitality and Tourism. He says it wouldn’t be a surprise if wage subsidy abuse occurred in many bars, restaurants and cafes.

“To be fair, there are probably a percentage of employers across all sectors who would take advantage of that and not do what they should. But unfortunately, I think with our sector that percentage is higher than it should be.”

Williamson, who has been an owner, manager and employee in hospo, loves the industry, and points out the majority of companies are decent employers. But there’s a constant undercurrent of cost-cutters who don’t pay the right wages, don’t meet the legal minimums, and, often, don’t charge as much for their meals.

When Covid hits, a big pile of cash lands in the form of the wage subsidy. “You could see the temptation [for abuse],” Williamson says.

Offending businesses should be investigated, he says, and, if abuse is confirmed, named and shamed – “because they are the ones who undermine decent employers, decent operators”.

Hospitality New Zealand didn’t respond to a request for comment, sent just before Christmas.

Last year, Restaurant Association chief executive Marisa Bidois told Stuff her organisation was in talks with the Business Ministry, MBIE, to “understand workers’ perspectives and find out what would make our industry more attractive”.

“The majority of owners we deal with understand they are facing a skill shortage, and they need to create workplaces that are welcoming.”

Bidois said owners were worried increasing prices would lose them customers. “How much are people willing to pay for a flat white? That’s the conversation I hear.”

Williamson says hundreds of students come through AUT’s School of Hospitality and Tourism every year. Yet even this self-selecting group, about 80 percent of which work part-time in the industry, have their HR horror stories.

“How can you build a great industry if that’s how you're treating really great talent; that's how they're treating the top people who are coming through? It's very frustrating.”

He says Covid has given the industry a chance for a reset; to re-think what it’s doing and address these kinds of issues head-on. “Otherwise we're just not going to get anywhere.”

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