Many employers and their payroll professionals are spending a lot of time and money trying to correct mistakes made from an unworkable Holidays Act 2003. This will not change until the government (or any government) shows some real courage in trying to make the Act workable and as easy as paying an employee their wage or salary.
The Holidays Act is a ticking time bomb for many employers and it is essential that you check your payroll NOW (if you haven’t already) to have full confidence in how you are calculating leave entitlements for your employees. If there is an issue resolve it NOW. This will not go away and the costs will keep climbing. It is better that you control and own this process rather than MBIE discovering there are issues with your payroll. Be proactive and get ahead.
NZPPA’s position has always been to get as much information as possible out to its members and to anyone involved in payroll, so we are all on the same page moving forward.
This post will introduce MBIE’s Position Statement – Estimating the Value of Holidays Act 2003 Underpayments. Recalculating leave taken or not provided over time for an employee can be very complex and time consuming and in some cases the records and data are no longer there to do so because of different payroll systems and processes being used over time, and employees that were managing the payroll system in the past may have moved on and no documentation is available. All of these factors and the issues with the Act itself can mean recalculating leave from the past is an unworkable option. So, in that regard MBIE has put out this position paper, but as usual it does not mean this will keep you compliant or free of risk.
You may have a chuckle at the opening sentence in this position statement: “It has become apparent that some employers in New Zealand have been underpaying minimum holiday entitlements”. Really MBIE? When did it become apparent to you, was that when you underpaid your employees in excess of $10,000,000 and still have not paid them? The Act was implemented on the 1 April 2004, why has it taken this long for the issues to become apparent and for MBIE or the old DOL or the government of the day to take action?
In this document MBIE states that if there are significant reasons that won’t allow the employer to recalculate leave as per the Act, then an estimation could be used but only for the past, and not for present or ongoing leave payments. MBIE puts this forward as an “estimation of arrears for past failures to comply with the legislation”. That’s great because that will help with resolving the past, but going forward we still have the same Act that has caused these issues and this is where the position statement does not help.
If you are in the position of deciding that an estimation is the only option, you will need to get your employees involved and they have the final say on whether they will accept the estimation or instead expect you to recalculate leave. The employer and payroll could be put in a position that they are doing an estimation for some employees and making exact calculations for leave for others, thus creating a nightmare. The bottom line is that the employee should have been paid correctly in the first place even though the Act does not allow payroll to do so.
In this document MBIE again blames the issues with underpayments on employers and payroll systems: “misapplication of end-to-end business and pay systems”. Yes, there are issues with some employers and some payroll systems, but the underlining issue is the Act. If the legislation is workable why are so many employers getting it wrong (including MBIE)?
There is no mention of the Act itself and how it does not fit a range of workplaces where a week or a day cannot be easily defined.
So in conclusion, check your system and take action NOW. Estimation is not the default action to take; it should be seen as the last resort and it does not mean this issue has been resolved. If you plan to do estimation you must get your employees involved and it does not mean they have to accept the estimation outcome. This position statement is another vague, unworkable option put forward by MBIE, so much for my New Year’s resolution (be nice to idiots!).
To get a copy of this position statement use the following link: https://www.employment.govt.nz/assets/Uploads/NEW-PS-Payroll-Estimating-Holidays-Act-Underpayments-Doc.pdf