Author: David Jenkins, NZPPA CEO

I doubt I will be on the Christmas card list for payroll salespeople after this article!

I get contacted constantly by businesses and payroll people looking for a new payroll option.  (And just to be upfront, I do not sell or promote any payroll system as NZPPA is neutral).  It is surprising to see the level of dissatisfaction there is with the payroll systems and payroll providers in the NZ payroll space.  The dissatisfaction comes from many things, but in general, the following are some of the consistent drivers for businesses moving from one provider to another:

• lack of service or support
• compliance issues with legislation (especially the Holidays Act)
• lack of transparency in what the payroll system does end to end (processing and calculations).

A little bit on payroll selection 101

Now there are different levels of payroll systems.  These include a small business payroll that is pretty much locked down.  The payroll provider has decided what it believes their type of business user wants.  Also available is a medium to large system that allows more customisation, configuration, and rules to be included.  (Again, based on what the payroll provider has decided to include, and which can be changed by the user).  Finally, the enterprise-level payroll is an end-to-end system but has a payroll that usually requires a lot of customisation to fit the business (with the liability sitting with the business to get it right).

The bottom line is that I always advise a business that they must have a valid reason to move to a new payroll system.  Payroll is business critical, and moving from one payroll system to another is high risk (I do not care what spin and hype salespeople push on the ease of transition!).  The steps involved in making a valid decision are:

• Take your time developing your business case on the reasons for change, ensure that it stacks up and get buy-in from all parties.
• Develop business requirements on what you want from a future payroll system.
• Undertake a robust selection process to ensure you get the best system and the right fit for the business, focusing on compliance.
• During implementation, focus on testing to ensure compliance, and don’t sign off until the provider meets your requirements.

Going back to taking your time, if any part of this is rushed, you have a good chance of undermining payroll going forward.  And one last point, try to fight back (in a positive and constructive way) on any overseas pressure to use an overseas-developed global payroll system that has not been designed for the NZ payroll environment.

Don’t start to think about moving payroll until October!

So finally, in this article, I want to cover the reasons why I would not move from an existing payroll system to a new offering at present.  Wait until October at the very least before starting the process for the following reasons that I will explain in turn:

• There is a massive amount of unprecedented legislative change coming that is still unknown but will have a direct impact on payroll if passed.
• Change now, and you may find the payroll provider can’t meet the needs of the new changes, and you may need to change again!
• It’s better to stay with what you know (good and bad) and manage it until you have a proven solution to move to.

The key to this is who will be the government in October, which is the big unknown.

Massive amount of legislative change

Whichever party becomes the next NZ government in October this year, all parties seem set on making substantial changes that will impact payroll, including a new Holidays Act, tax thresholds, employment insurance, fair pay agreements etc.

Change now, and you may find the payroll provider can’t meet the needs of the new changes!

As stated, some of the above changes are major.  The quality and structure of many (but not all) NZ payroll systems (developed here and overseas) are sub-par mainly because we do not have a central registration or certification process (by a government department or agency) to ensure we have fit-for-purpose payroll systems (especially to meet legislative requirements) for business in NZ.  At the very least, we need consequences to level the playing field for payroll providers to be taken to task by their clients, government departments and agencies for non-compliant software.  (I have raised this several times before.)

From what I have seen about what is being put forward (and my understanding of payroll systems in general and from auditing), for some of these potential changes, there will be payroll systems that will not do what is required, as the base system does not even meet current requirements.  Some payroll systems in the NZ environment, regarding development, structure, and functionality, are well behind what legislation payroll needs to run a compliant payroll.  Yes, new changes made in legislation will mean a payroll provider will update their system, but for some of these changes, it may not be possible.  It could be issues with software development or even that it’s not economically viable for the payroll provider, as the system may need to be changed from the ground up.

Just as an example of how complex some of these changes will be for payroll and payroll software, let’s look at what is being proposed for the new Holidays Act (if we ever see this).  What has been put forward is:

1. Three calculations to determine annual holidays (greater of the 3).
2. Two calculations to determine sick, bereavement, alternative, public and family violence leave (greater of the 2).
3. There are totally new calculations involved in 1 and 2.
4. Entitlement to be available from day one for employees.
5. Numerous tests and checks are needed to determine an otherwise working day, a week etc.

The above is not a minor tweak to the software.  This is basically a total rewrite!

If a new payroll system is selected, it could mean with the potential changes coming that the new payroll system will not be able to provide what is required.  And what has been invested in the new system will be lost (money, time, compliance, and confidence).  As already stated, payroll is a business-critical activity, so if you change payroll, you plan this will be for the foreseeable future, not as a short-term change.

As a final point, NZPPA gets complaints from our members on issues with payroll providers and their software.  One of the most common complaints is that bugs and fixes are being raised with the payroll provider, but little or no action is being undertaken.  This is quite common and sets the scene for what will happen with the mountain of potential change on the horizon.

It’s better to stay with what you know (good and bad) and manage it until you have a proven solution to move to

If you have decided to change your payroll system, you have identified a clear reason for the change.  You know what the issues are with your present system and in what areas, such as which calculation or calculations or what part of the end-to-end payroll process is undermining payroll and driving the decision to change.  This may be seen in the manual workarounds developed by the business and payroll to resolve some of these issues, not as a solution to save the payroll system but because payroll is doing what it must to meet compliance.

If you know the shortcomings of your system, use that knowledge now to keep your payroll on track until you know in which direction payroll legislation will be going from October.  I am not saying do nothing, but it is better to wait with the devil you know (your present system) than change payroll systems now and find that decision is undermined by future legislative changes.

In conclusion, I say it often, but payroll is a business-critical activity, and changing from one payroll system to another is high risk.  At present, there is too much uncertainty that adds to the risk of moving to a new payroll system.  At least think about waiting until October to start the process.  Let the dust settle, and you should know more about what the business will need from a new payroll system.