Two cleaning businesses and their owners have been penalised $55,000 by the Employment Relations Authority for misclassifying permanent staff as "casuals".

A Labour Inspectorate investigation found the Timaru-based operations Cleantime Solutions Limited and Busy Bees, which employed 53 employees, had misclassified 29 of them as "casuals".

Under their working arrangements they should have been permanent employees and entitled to all of the associated benefits.

Last November, the Employment Relations Authority had found the owners Binesh Shukul and Ranjana Reddy to have breached the Holidays Act 186 times, which involved non and incorrect payments, with arrears owed to 29 employees, and inaccurate record-keeping relating to 53 employees.

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They have been ordered to repay and remediate their workers, with Cleantime penalised $40,000. Shukul and Reddy were penalised $10,000 and $5000 respectively

"By misclassifying their workers, they failed to provide basic minimum entitlements such as paid sick and bereavement leave and payment for public holidays," the Ministry of Business, Innovation and Employment said in a statement.

"The businesses were able to secure an unfair cost advantage over their competitors as a result of their non-compliance."

The misclassification meant the businesses had to pay annual holiday pay in the form of proper annual leave entitlements even though one of the businesses, Cleantime, had paid casual workers the eight per cent loading to reflect annual holiday pay.

"The ERA penalties send a clear message that misclassification of workers to avoid minimum standards will cost employers significantly more than treating workers correctly and paying the right amount in the first place," said Labour Inspectorate Regional Manager Jeanie Borsboom.

"The determination calls for franchises to be mindful to assure employment standards exist throughout their franchisees."

Reddy had since sold Busy Bees, but Borsboom said any business exploiting their workers can have a damaging effect on the entire brand name.

She called on customers to take an active stand against worker exploitation by choosing not to buy from business which had breached employment standards.

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