I had hoped that as part of the new Holidays Act, the imbalance between payroll providers and employers would finally be put on a level playing field where providers would and could be held accountable for the compliance issues with their payroll software. I’m sorry to say this is not the case in the MBIE better rules approach. The new Act will not detail how calculations, checks and tests have to be done in payroll software, leaving it totally up to the payroll provider to decide how a calculation is undertaken and what checks or tests they will incorporate. So basically, employers are faced with the same situation they are in presently – no protection, all the liability, and each payroll provider makes their own decisions on how and what calculations are included in their payroll system.

In this post, I want to cover some of the main reasons why having all Holidays Act calculations defined and required to be incorporated into every payroll system based on the same legislative requirements and with consequences for payroll providers not doing so. This would ensure the success of any new Holidays Act for employers, employees and payroll providers. The main reasons are to:

• Ensure compliance
• Provide additional protection to employers
• Aid in the education of a range of groups, employers (management, HR and payroll), employees (union), MBIE, payroll providers

Ensure compliance

One of the main drivers for changing the Holidays Act was the issue of compliance. So, it has been interesting to see the better rules approach go in the opposite direction. If you want to ensure compliance with the Holidays Act, a key component would be getting all payroll systems to meet the same legislative requirements in the calculations. This is not rocket science. It is just plain old common sense. I raised this in a recent MBIE better rules meeting and was told the reason for the better rules process not ensuring this was so payroll providers could be “innovative”. What a “load of horses..t”! If that was the case, why are we currently seeing all the failures in payroll systems? Should innovation not have solved the issues we have seen coming from the system? It was also mentioned that as long as the outcomes were achieved, they would meet the overall requirements. MBIE seems to have fallen for the sales routine from some of the payroll providers involved in the better rules approach, as their needs appear to have been put before the needs of employers in paying employees correctly.

If each payroll provider can create calculations that, in their view, meet the requirements of a new Holidays Act, there will be differences from one system to another. The differences become obvious when an employer moves from one system to a new one as they all come out of the woodwork. The employer and payroll now have to fight fires with the old and new systems on which one is right. It is the differences that cause problems in payroll systems and undermine compliance. Depending on the leave situation, payments made, work pattern of the employee, the time period involved, and if the payroll system actually includes all of the options that legislation requires, it all affects compliance.

Now, of course, the argument against what I am stating is that the new law will create the certainty that payroll providers need to make payroll systems more compliant. Sorry but again just another “load of horses..t“. From what has been seen of the MBIE better rules approach, where meetings are called at the last minute (weeks to months apart), feedback is requested but can be seen as just lip service as any inputs just seem to go nowhere (as there is no acknowledgement), and every meeting raises more and more issues with MBIE’s ongoing vague responses. The documentation on developing the new legislation to meet the 22 recommendations from the Holidays Act review shows that what they want to introduce is vastly more complex than what we have presently. Creating a new version of over-the-top complexity to replace what we are currently doing (even though it does not work) does not translate into providing more certainty for employers or payroll. The more complexity, the more important it is to have calculations clearly defined so payroll works in the same way in the same situation. This creates standard compliance across all payroll systems and activities, which is what we really need to improve compliance with the Holidays Act.

Provide additional protection to employers

Another reason to have payroll providers and their systems doing the same is it will help in several areas by creating the level playing field that has been missing between employers and payroll providers. Yes, of course, you will see all of the rhetoric on payroll providers’ websites on how they are in partnership with their clients (employers). But when problems with the Holidays Act are found in their software, it has been very interesting to see that the partnership disappears, and the blame game starts. I have never seen a payroll provider take full responsibility for their software when the system has been clearly identified as being at fault. Taking them to court is just too hard for an employer, especially a small business, as the cost and potential risk can’t be justified. It also must be understood that one employer may raise the issue of compliance, but there could be thousands of businesses using the payroll system that have also been affected.

Additional protection for employers should include:

• Making payroll providers accountable in legislation for their software when it does not follow the requirements of any new Act.
• Back the accountability with real consequences such as substantial fines (for worst-case offenders) based on the impact on not just one business user but all system users.
• Allow MBIE’s name and shame method to be used (as they are happy to use this against employers). If this were used against a payroll provider that had been formally warned but had not corrected compliance issues, that would be an effective way to get them to sort out the issues as money talks. Once businesses talk with their feet, they will leave or not choose that provider as a new payroll option.
• Once issues have been identified and confirmed by MBIE, there should be a legal requirement making the payroll provider inform all users of that payroll system about the problem.
• There also needs to be some sort of banning order for a payroll provider that has been warned but has not improved or corrected their system to a level of compliance required by legislation.

Aid in the education of a range of groups, employers (management, HR and payroll), employees (union), MBIE, payroll providers

If any new Holidays Act had calculations the same for all systems, this would assist in understanding them. This is one of the major issues with the present Act. Employees, management, HR, and even payroll don’t clearly understand the calculations, especially when the work pattern varies in a workplace or the workplace and terms and conditions are complex. As mentioned previously, what has been seen from the better rules approach is not a new clear and simple method of calculating an employee’s leave. It has gone in the opposite direction with complex calculations, multiple criteria, rules and checks.

Employees won’t understand (it’s hard enough to explain how their leave is presently calculated). Add to this having payroll providers doing their own thing in how a calculation is designed and run, and once again, payroll will not be able to explain or understand what the Act states and what their payroll system actually does. Then trying to explain how the payroll system meets the Act’s requirements to management, HR, employees, the union, or even a labour inspector is where it will come unstuck.

If all payroll systems do the same, it can be seen as such, and we talk the same, which is the basis of fundamental compliance. This is not rocket science, just plain common sense.

What about innovation?

There is a place for innovation in payroll but not in creating legislative calculations. Payroll providers can use innovation to make their payroll system transparent so payroll practitioners can see everything the payroll system is doing instead of being hidden.  Payroll providers can create payroll systems that provide all the options required by law, not just the ones the payroll provider thinks a business may use. It is up to the business to decide and be held liable for their choices, not the payroll provider to decide. A payroll provider can provide a system with functionality that fits with payroll processing and not try to dictate a process to suit the payroll system. What a payroll provider could really do is use innovation to create tools to highlight and focus on compliance in every aspect of payroll processing.

In conclusion, I just cannot understand why there seems to be a belief from MBIE and some of the payroll providers involved in the better rules approach for the new Holidays Act that they know best. It seems more about keeping the norm payroll providers have now – they have the power but not the liability. This must change, and we had a real opportunity to reset, focus on compliance and create a level playing field between the employer and their payroll provider. It is now clear that this will not be the case. This failure will just add to an unworkable new Holidays Act and no protection for employers yet again.

NZPPA supporting NZ payroll since 2007!