A couple of things to make clear from the start:
- Firstly, NZPPA is not stating don’t use this guidance. There are some useful points to back up areas that have been used in payroll for many years when working with the Holidays Act, but up to this time there has been little in the way of written confirmation to back up what we have been doing. So, do use this document where you can.
- Secondly, NZPPA accepts this guidance was never for the purpose of solving or resolving the issues with the Holidays Act. The only way to do that is to replace it with a workable piece of legislation.
This guidance shows clearly that the Act must change and the government and MBIE are just trying to fill the gaps, dumping the real issues back on employers and payroll to resolve without providing a way to do so. The document should be seen as what it really is – window dressing only!
To start with, please read the following section located under the topic:
Key steps for reducing the risk of non-compliance
MBIE considers that the following steps will significantly reduce the risk of non-compliance with the Act:
“(6) Employers may want to err on the side of caution – in many cases there is no single ‘correct’ answer as to what the minimum entitlement or pay is. If there is more than one choice for calculating entitlements, the ones that are more favourable to the employee may significantly reduce risk and, potentially, the compliance costs associated with trying to determine the minimum.’’
Reference: Holidays Act 2003 Guidance on annual holidays
and related provisions, page 4.
This is just plain wrong! The Holidays Act is based on the principle of minimum entitlement, meaning you can always do better but you cannot do less. The Act must be able to provide the mechanism to clearly identify what the minimum entitlement is for any employee in any situation. This statement from MBIE just shows how unworkable and fundamentally flawed the legislation is when minimum entitlement or pay cannot even be determined, but an employer and payroll can be held to account when it is wrong.
It also shows MBIE does not understand payroll or business for three reasons:
- To “err on the side of caution” is not in any payroll process I have ever used. Payroll is based on accurate, complete data, not guess work. To provide entitlement (time) to an employee, payroll must be able to define what the minimum entitlement is for that employee. We are talking about ‘time’ here. What is a week for an employee and how many days in a week for that employee? Once that is established then the value of the leave can be determined for that time.
Following MBIE’s advice can mean that we think we have provided minimum entitlement or better, but in fact another view may totally challenge this and put the employer at risk. The Act must provide a tool, mechanism or rule that defines time when it cannot be clearly determined. Guessing or always providing better is not acceptable and does not fit with an Act that states the employer must at least provide minimum entitlement to its employees.
- Paying an employee more to ensure the employer has not underpaid is just not what business is about. MBIE may be able to spend $67,000 of taxpayer’s money on a sign outside its head office or $560,000 overhauling its website (do a search on the net under “MBIE spending” to just see how they waste taxpayer money). But for most businesses that have responsibilities to stakeholders, shareholders and other interested parties, including employees, every dollar counts. Also, if you pay more there are flow on effects to other parts of payroll and the overall cost to the employer such as KiwiSaver (the employer contribution is based on gross earnings and also when ESCT is reassessed). This all adds up and is not as simple as just always paying more. Of course, the employer can always pay better than the act but being forced to pay better to ensure compliance is wrong.
- MBIE’s guidance also states in this section that by choosing the more favourable option it “may significantly reduce risk and, potentially, the compliance costs associated with trying to determine the minimum”. How does this reduce risk or compliance costs? Again, you must be able to define the minimum to show that you have met the requirements of the Act. How does paying more reduce risk? Should not the Act provide what the requirement is so we can clearly understand how to be compliant without having to always pay more to an employee? Also, if we are always having to pay more, how does this reduce compliance costs? Surely if you are paying more then that is a cost to a business!
So in summary, for MBIE to state “err on the side of caution” in regard to legislation based on minimum entitlement just shows the Holidays Act is fundamentally flawed and unworkable. If an employer is accountable in providing minimum entitlement, then the minimum entitlement must be able to be defined.
I will be writing a few more posts on this MBIE guidance in between trying to help employers and payroll to actually meet the requirements of the unworkable Holidays Act.
To get access to the full guidance document go to: https://www.employment.govt.nz/about/news-and-updates/new-holidays-act-2003-guidance-available-online/
NZPPA supporting payroll since 2007!