Are your payroll processes legally up to scratch?

Businesses across New Zealand are being encouraged to undertake regular ‘health checks’ of their payroll systems as the Government continues to find some of the country’s biggest firms are failing to comply with the Holidays Act, despite using modern software.

Labour Inspector Vikram Lakhera from the Ministry of Business, Innovation and Employment (MBIE), addressed HR professionals and employers at an event held in conjunction with HRINZ Christchurch and Duncan Cotterill, last week.

He said that results of an ongoing audit by the Payroll Taskforce Team were ‘concerning’, with many of New Zealand’s top 100 businesses failing to meet standards set by the Holidays Act.  The impact of non-compliance is vast; organisations are having to pay out large arrears to their employees because of incorrect payroll. At least $22,000 was reimbursed to employees in the last quarter.

Is your business compliant?

Having a modern payroll system in place does not automatically guarantee compliance with the Holidays Act. Payroll systems need to be set up correctly to ensure that all types of working arrangements are taken into account correctly, with particular attention paid to waged employees with inconsistent hours and working days, allowances, on-call and overtime provisions. Failing to do so can result in underpaid or overpaid holiday entitlements.

Non-compliancy consequences

Failing to provide correct payroll to employees not only results in hefty arrears, but can cause costly and timely consequences to re-calculate each individual employee’s entitlements. In some cases, records may be missing, or the cost or time involved in re-calculation may be so great that it adversely affects business sustainability and means that employees either do not receive their full entitlements at all, or, have to wait years to do so.

What next?

The MBIE has been working with some employers and payroll providers to improve their systems and ensure that they are compliant.  

Senior Consultant, Anita Dazzi from EQ Consultants advises: “Having a non-compliant payroll system is certainly challenging and may be daunting for business owners and employees in charge of payroll in their company.  However, now that we are aware of this, we can be proactive and at least ensure that data entered in our systems is correct to start with. 

“The Labour Inspector encourages businesses to undertake regular ‘health checks’ of payroll data by looking into the following:

  • Individual Employment Agreement provisions
  • Annual Holiday records and Holiday Pay payments
  • Wages and time records
  • Gross earnings
  • Bereavement, Alternative Holiday, Public Holiday and Sick payments
  • Payments at 8% of gross earnings
  • Termination payments

“Employers are also encouraged to undertake a manual calculation of ordinary weekly pay and average weekly earnings  commonly where a number of mistakes occur. In fact, Section 21 of the Holidays Act states that annual holiday payments must be:

  • Made at a rate based on the greater of the employee’s ordinary weekly pay as at the beginning of the annual holiday; or
  • The employee’s average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday.”

For more information about calculating payments and leave, including payroll and the Holidays Act, visit www.employment.govt.nz/leave-and-holidays/calculating-payments-for-leave-and-holidays/ 

This blog is not intended as legal advice but is intended to alert you to current topics of interest. If you require further HR information or advice, please contact EQ Consultants on (03) 366 4034 or email info@eqconsultants.co.nz