Another area we get lots of questions on has also been updated.

Author: David Jenkins, NZPPA CEO

One Act that has a big impact on payroll is the Wages Protection Act 1983. In a nutshell, this Act is about: how and when an employee gets paid, what deductions can be made from an employee’s pay and overpayments. It covers a big part of the work we do in payroll, but the current law was written in the 1980s and payroll, technology and how we use money have vastly changed.

In this post, I will highlight the issues with the Act and how payroll needs a modern updated version to meet the needs of business, payroll and, of course, employees. This law is not fit for purpose and needs an update to reflect where we are today and how money is used. Now, I am writing from a payroll perspective (as that is all I am interested in and write about), so if you have views on all the world’s ills, good on you, and I hope you can resolve them.

I will structure this post on four areas with some extra points based on the following:

• how an employee gets paid
• when an employee is to be paid
• what deductions owed to the employer by the employee can be made
• the recovery of overpayments by the employer that had been made to the employee.

How an employee is paid

One of the Act’s foundations is the employee’s right to be paid in cash (NZ coin and banknotes). This is one reason you can say no if an employee asks to be paid in cryptocurrency. However, it also means the employee could ask to be paid in cash (even if they had agreed to have their pay paid into a bank, the Act allows them to withdraw their consent). Even though this could be seen as a potential nightmare for payroll if we went back to the dark days of paying all employees in cash, it is a fundamental right (just don’t tell them they can do it!).

Section 9 of the Act states that an employee can consent to receive their pay by postal order, money order, specified cheque, or lodgement at a financial institution. Well, this is one area where how we use money and how payroll pays an employee’s pay has moved on. For example:

• Postal order: when I was a child (yes, I was one once), a postal order for me was seen as a cheque with a stamp on it that you got from the post In all my time in payroll, I have never paid an employee by postal order. Searching the New Zealand Post website, I could not find any reference to a postal order (only money orders, but then it stated New Zealand Post stopped domestic money orders in February 2018).

• Money order: Again, I have never used a money order to pay an employee. I can see it may be used for an employee overseas depending on the country and the issues with getting to a bank, but within New Zealand, it would not be a viable option.
• Specified cheque: Well, after we moved from paying in actual money, the next transition for payroll was providing an employee with a cheque that was deposited at the bank and, once cleared, could be drawn The days of the cheque are gone or are very close to being gone as again how we use money has moved on.
• Lodgement at a financial institution: in plain language, these are the banks where the vast majority of employees’ pay is deposited. For many years with the various banks present in New Zealand, we had a banking system that provided poor service in relation to how pay was processed and deposited into employee

Another thing that is very important for payroll and which is overlooked is the requirement in Section 9 for “an account standing in the name of that worker or in the name of that worker and some other person or persons jointly”. To be honest, payroll focuses more on the bank account number than the name on the account. So, if the employee’s name is Joe Bloggs, there is a legal requirement if Joe has agreed to have his pay paid into a financial institution (bank) that the account name has Joe Bloggs listed alone or jointly with whoever Joe wishes.

So, Section 9 is well out of date with how money is used in New Zealand and needs to be brought into the present day. I also do not see an issue with an employee having their pay paid anywhere they want (even if the account is not in their name) as long as they give their consent. It is their money, and they should have the freedom to choose.

When an employee is to be paid

Every employment agreement makes mention of when an employee is to be paid, such as the 20th of the month, every second Tuesday, on a Friday etc. This is an agreed term, and once agreed, the employer must pay the employee on the agreed date. In the past, the banking system was very poor in standardising the payment of wages to employees resulting in different banks processing payments at different times throughout the day. Today, banks have stepped up, and now do processing 24/7 but it won’t mean payroll now has to come in on a Sunday to do payroll processing as the pay date is still an agreed term in the employee’s employment agreement on when they get paid.  There needs to be pushback from payroll if the business wants payroll to be done outside normal business hours as payroll needs access to parts of the business to confirm and verify what is to be processed or it means processing pay on incomplete information.

Now, the main issue that we see in payroll on when an employee is paid is with termination pays as an employee may not finish their employment neatly at the pay period end. There is a mixture of what was agreed in the employment agreement and what was agreed based on the situation at the time of termination. Or, when no agreement is in place, there are other options. The present Act is quite vague, and this is a payroll area that needs to have defined rules on the termination situations we undertake. Having a defined clause in an updated Act that must be included in an employment agreement is the best way to resolve this as it is agreed between the parties, and payroll can refer to it when the termination situation arises.

Deductions from an employee’s pay owed to the employer

The deduction section of the Wages Protection Act, Section 5, is about deductions that the employer makes from an employee’s pay regarding money owed to the employer. Government departments and agencies are exempt and can take what they like based on the legislation they work under. The employer has vastly different opportunities to recover money owed to them by the employee. The bottom line is an employee could incur a debt to their employer for a valid reason, such as the employer giving the employee a benefit or staff buying privileges (usually at a reduced rate) where the employees purchase on account to be paid off via their pay.

Under the current Act, even when the employee has given written consent to deduct the benefit, they can withdraw their consent. And the employer is left high and dry with no option to recover what has been provided in good faith to the employee. This needs to change. I get tired of the constant assaults on employers that they are all out to steal from the downtrodden employee. I have never seen this in payroll. We focus on paying our employees correctly and would expect that if an employee owed money, it could be recovered. Yes, having flexibility in what can be

repaid to help an employee is essential, which is part of being a good employer. However, an employee’s ability to just withdraw consent and walk away from their debt does not fit with an employment relations environment based on good faith from all parties.

I have seen employees withdraw their consent on debts owed, especially when leaving an employer, knowing they will still receive their full termination pay. This section of the Act is weighted far too much on the employee’s side and should be balanced, so it is fair to both. If an employee gives consent for the deduction, but the law allows them to remove their consent, there must be an additional step: the employee must provide a valid reason for the withdrawal. I have had employees just state they have the right to withdraw their consent because the Act allows it without giving any reason. This is just unfair and shows how unbalanced the law is. Having a third party involved if needed would help resolve these issues (that the removal of consent to deduct was based on a valid reason). But I am always wary of creating another layer of complexity. If the employer tries to deduct an unauthorised amount of money from an employee’s pay, then yes, the employee must have the right by law to have this stopped and get additional help if needed.

Overpayments

The nightmare for payroll is overpayments (nearly as bad as the Holidays Act nightmare!). Payroll processing builds in various checks to identify and resolve any overpayments before they become actual ones, but they do sometimes happen. My favourite overpayment situation is the employee who leaves, but no one tells payroll, and they are on autopay. Of course, the ex-employee does not contact the business to say they are still being paid, and down the track, the penny drops, and payroll has to clean up the mess. Just for all you non-payroll people that may be reading, payroll does not have ESP or some sort of Jedi powers where we sense an employee has left the business. Payroll only gets to know an employee has left the business because of a termination or exit process being actioned correctly.

So, two main areas impact payroll from overpayments: recovery of overpayments from current employees (ongoing) and recovering

overpayments from an employee’s termination pay. There are only a few exceptions that can be used to deduct an overpayment, and you still need to consult with the employee. The rules on deduction from a final pay are all about the employee’s consent and their ability to withdraw that consent (as discussed in the previous section).

In conclusion, how we use money has moved on since the Wages Protection Act 1983 was introduced, and an update is well overdue to

reflect how money is used today. The Act needs to be balanced for both employees and employers, so the employee is given protection from unauthorised deductions, and payroll can act on an agreed deduction.

Additional guidelines and rules need to be included on how an employee is paid, when an employee is to be paid, and what deductions can be made from an employee’s pay and overpayments. In doing this, the Act’s aim will still be achieved in protecting an employee’s pay; however, it should be based on how we use money today.