By taking a closer look at the circumstances around Supie there are some valuable insights and lessons to be learned for businesses.
What are the benefits of employing staff under a different entity?
The practice of having your workers employed and paid under one entity, and having your company assets under another isn’t illegal, but it can create some issues.
For starters, because the employing entity (in this case Workerly) doesn’t own anything of value, it limits the ability of employees to claim their entitlements if those entitlements are withheld or undermined, as the employing company doesn’t hold the assets or money to pay them.
It also reduces the potential payoff for an employee who might have grounds to raise a personal grievance claim against their employer for the way their employment or termination was handled.
Even if the worker is in the right, the chances of them getting a just outcome are greatly reduced if their employer has no money to pay them.
You can also get around the 90-day trial period rules, which only allow businesses with 19 or fewer staff to use 90-day trials that protect the employer from a personal grievance claim in respect of the dismissal.
So, if you have 50 employees, but set up three entities that each employ 19 or fewer employees, then you’d be able to use 90-day trial periods for all your workers - instead of probation periods, which don’t offer the same protection from personal grievance claims.
What happens when a company goes into liquidation?
If your company goes into voluntary administration, chances are you owe money to a bunch of people.
Voluntary administration usually lasts 30-40 days and is a way to stave off liquidating a company.
In the event that your company goes into liquidation, commercial law is clear that a hierarchy of creditors can claim any leftover assets. This goes in the order of:
Secured creditors:
- Banks, the main source of secured creditors, holding fixed charges on business assets, including property.
- Lenders that hold a charge over any assets held by a company, such as machinery, workplace equipment, and the company inventory.
Preferential creditors:
- Employees, with a maximum claim of $22,160 per employee covering wages, redundancy pay, and holiday pay.
- And the Inland Revenue Department, for GST and PAYE tax.
Unsecured creditors:
- Utility providers, credit card companies, landlords.
This is a complicated area, but the broad outline is that after liquidation costs, secured creditors and preferential creditors are paid first, then unsecured creditors.
Creditors with valid specific security over stock and equipment (such as retention of title clauses or leases) generally have priority to recover those items where they can be clearly identified.
The main categories of preferential claim are employees for wages, redundancy pay and holiday pay (up to a maximum of $22,160 per employee), and Inland Revenue for GST and PAYE.
If there is, for example, $60,000 remaining to pay unsecured creditors and they are owed a total of $600,000, they will each receive a dividend of 10c on the dollar on their debt.
What does your company structure say about your priorities?
The news that Supie workers were employed by a second company has raised some eyebrows, and rightly so.
Given many of their employees were in typically lower-paid roles in distribution and warehousing, there’s an angle to consider here - what does your business stand to gain, given that your employees stand to lose?
If your business is solvent and there’s no risk of financial squeeze or challenges on the horizon, then this is probably not top of your list.
However, if there’s a risk you may need to restructure or make employees redundant, or (worse) you may go into voluntary administration or shut the whole operation down, be aware that public scrutiny may result in an unfavourable opinion of your business or brand.
To avoid the risk of uncomfortable questions, take the time to review your employment structures.
Ensure that your employees are employed appropriately, and that you’re comfortable with the potential consequences if your set-up was to be heavily scrutinised.
Sylvie Thrush Marsh is an employment law at human resources platform MyHR.
