Author: David Jenkins, NZPPA CEO
One unique situation payroll may find itself supporting employees through is during and after a natural disaster. Payroll is a business-critical activity, and payroll and the business must have plans for what steps to take if a natural disaster occurs. Any plans created should be clearly understood by payroll and set out how payroll will function. It should be reviewed annually.
Important point: The number one priority of any plan or action is to ensure staff safety.
As always, I write this article from a payroll perspective for payroll practitioners. Since it is a big subject, I will cover only the main areas.
The pay office
Two types of potential disasters will impact how payroll will react, and this will dictate what payroll can and cannot do at that time:
- Where the business has a warning of a potential situation (cyclone, flood, volcanic eruption or a tsunami, etc.).
- The event happens (earthquake, fire, industrial accident, etc).
The key to both is for payroll to have its own disaster recovery plan (as part of the wider business plan). The payroll plan will detail what will be done, by whom (position title, but with backup if unavailable), where and when.
The bottom line is that having access to payroll data (in the cloud) and the system remotely is key, so payroll can be processed from anywhere when it’s safe, as the workplace may not be available during and after a disaster. Any disaster recovery plan for payroll must be tested on at least an annual basis to ensure it will work if needed. That way, the business and payroll know the steps and are confident that the plan will help keep payroll running.
Importance of the employment agreement
A well-written and thought-out employment agreement should include a section on what will happen during a natural disaster, as this is the first document payroll should refer to.
General rule on paying an employee
If there is no agreed clause on what will happen in the event of a natural disaster in the employment agreement, the following would need to be applied:
- “An employer is required to pay an employee who is ready, willing, and able to work if work is not available through no fault of the employee (for example, the workplace has no power). Acting in good faith and applying common sense is important.”
Paying employees
In standard payroll processing, we have certainty based on what has been agreed (pay date) in the employment agreement, the payroll system and the professional work undertaken by the payroll practitioner to pay employees correctly and on time. When a natural disaster happens, many things we take for granted in payroll may not be available or possible in the short term and even for some time afterwards. This includes access to physical payroll records and equipment used in the pay office, contacting managers and employees to confirm payments and deductions, and even getting access to physical timesheets or applying government-directed deductions (new and old).
Cash is king (well, it used to be), but if banks are closed and ATMs have no power, paying your employees in cash may look good on paper as part of your disaster recovery plan, but in reality, it may be hard to do. Also, how will you get physical money into the hands of employees when travel is unsafe with roads closed, etc.?
The key to paying employees should be ensuring that payroll is processed when it is ready and communication has been restored. So, if there is one area a business should look at, it is strengthening communication. A second or third communication channel can be used if a natural disaster knocks out the primary form. Of course, this is not just for payroll but for all business activities.
What to pay an employee may be the main issue because payroll may not have all the usual information to determine what to pay the worker. The employment agreement would always be the first reference to determine what to pay the employee. In the worst case, if the employment agreement does not provide the information needed, the last pay could be paid again (after getting sign off from management). At a later date, when the environment is more settled and any additional payment can be determined, a catch-up payment can be made. It would be essential to communicate with employees about what is happening with their pay, and this is another good reason to include this in the employee’s employment agreement.
Options for leave and payment during and after a natural disaster
When a natural disaster happens, looking at what leave options are available for employees affected is essential for payroll to provide to the business.
There is a wide range of leave options available. The key to this is that management needs to talk to the employee (if able) to understand the business situation and how the disaster has impacted the employee so that the situation and leave options can be tailored to what the employee needs and has available.
Payroll mustn’t just use an employee’s leave entitlement without the employee’s consent, or if management has not raised the correct notification period with the employee.
Types of leave options that could be available:
- Annual holiday entitlement or annual holiday entitlement provided in advance (if the employer agrees).
- Additional agreed leave (extra week of annual leave, long service leave, etc).
- Any alternative holidays that are available.
- Agreeing to provide additional leave during the disaster not linked to the Holidays Act (like special leave).
- Offering unpaid leave, or if requested by the employee.
- FBAPS leave if appropriate in the situation.
- Offering an advance on wages, but clearly understanding the tax consequences for this (for payroll and the employee).
Using Section 19 of the Holidays Act
As stated, when a natural disaster occurs, management must talk to employees at the appropriate time to discuss the situation and what the business can and cannot do because of what has happened.
If the workplace is not viable and working from home isn’t an option because of the nature of the work undertaken, management should talk to their employees about whether they are open to taking leave until the business has more certainty about the next steps. If the employee does not want to use their leave (that is their right), then the organisation needs to decide if they want to use Section 19 to provide notice to an employee that in not less than 14 days, they will be required to take their annual leave entitlement.
It would be payroll best practice to provide this written notification stating when the 14 days start and finish, and when the employee’s annual leave will begin. Also, it will state how much annual holiday entitlement the employee has and what will happen (next steps and options) if their leave runs out and the business still can’t offer a return to work for the employee. The annual leave calculation for the annual holiday is still the standard calculation per the Holidays Act. No special natural disaster leave calculation is included in the Holidays Act.
After the disaster, what payroll may be needed to do
After any disaster, a business may have to make choices based on how the disaster has impacted its viability in the future, from business as usual to being unable to continue. For payroll, it may mean a wide variety of activities for payroll to undertake in the aftermath of the natural disaster, such as:
- Payroll may need to relocate because of the impact of the disaster on the business premises. It could even mean physical payroll records have been lost or remain inaccessible because of safety (a good reason to look at electronic records).
- Employees may be redeployed (temporarily or permanently) to other positions or locations, with potential changes to employment agreements and pay.
- Redundancies if the workplace or positions are no longer viable because of the results of the natural disaster.
- Employees resign because of external factors created by the disaster.
What can payroll learn from a disaster?
Of course, no one wants to experience a natural disaster, but if it does happen, learning from it and using that knowledge to be more prepared to protect payroll and aid the business in paying employees in any future natural disaster is how payroll turns a horrible situation into a learning experience.
The key question would be: Did the payroll disaster recovery plan work? What worked, what did not and why?
One point I want to make here is the importance of having up-to-date contact information for employees and management. Dealing with a disaster and trying to communicate with employees, but finding their contact details are out of date, will cause significant issues for the business and payroll. So, asking employees to update their contact details should be an annual business activity. It usually involves HR or payroll.
In conclusion, we never want a disaster to happen, but having a plan and testing it creates some reassurance that payroll can do its business-critical role of paying employees as soon as possible when a natural disaster occurs. The last thing an employee needs to consider when a natural disaster happens is, ” Will I get paid?”. The business has responsibilities to ensure this happens, and payroll needs to be ready to step up as part of our profession and as a professional payroll practitioner.