Dear Mr Lees-Galloway


My apologies for the dramatic heading to my letter. It is just an expression of the frustration and annoyance that I feel regarding the lack of patience and goodwill being shown by the Ministry of Business, Innovation and Employment (MBIE) in dealing with Holiday Pay compliance issues. Being the owner of a payroll bureau, and also providing on-site support to employers who process their own payrolls, I am intimately aware of the problems of non-compliance with the Holidays Act. I estimate that around 75% of employers are non-compliant with the Act in one way or another, and if you have any doubt about this figure, you only need to ask your own department how many workplaces they have investigated that they consider to be 100% compliant with the Act, and what percentage this represents.

Employees have not been seriously disadvantaged by the incorrect calculations of leave pay, but the way that MBIE is insisting that the issue be rectified is often seriously disadvantaging the employer, to the extent that in some instances the employer is paying the equivalent of twice the normal leave pay. The ministry is getting away with this because they are technically following the wording of an extremely poorly designed piece of legislation while ignoring another very important factor when requiring employers to fix the incorrect calculations. This flies in the face of good justice, and for successive governments to have ignored this is reprehensible.

I am sure your department is aware of the flaw in the calculations that they require to remedy what it claims are short-payments in Holiday Pay. If not, it should be, and if it is aware, the fact that it continues to demand this of employers is shameful. I have attached an example showing how the requirements of the MBIE are so unfair.

The irony of the situation is that the more generous an employer is in paying wage increases and bonuses, the higher the chance that an audit by MBIE will seriously affect the employer financially.

I am currently dealing with an employer who has received a Business Excellence Award. One of the criteria for this award is his company’s staff relations and his generosity towards his staff. Now, as a result of an MBIE audit, he is facing the possibility of bankruptcy and is suffering deep depression. How many other well-meaning employers are there that are facing this same repressive situation?

There is a very good reason why an overwhelming number of businesses are not familiar with the Holidays Act, and that is a lack of clear information from the MBIE regarding this. The Inland Revenue Department is excellent at communicating changes in tax laws by regular communication to all tax payers via newsletters, emails and via its website. But there is a total lack of any form of an education process from MBIE. The information is available if you go searching for it, but because of the lack of a coordinated education program, tens of thousands of employers are unaware of many aspects of the Holidays Act, for example, the fact that it is no longer acceptable to calculate holidays as a percentage of gross income except in certain circumstances. The Holiday Act is so complex, that it is unreasonable to expect every employer to be fully conversant with it, or indeed have a staff member with this level of understanding.

Compounding the frustrations caused by this lack of education is the fact that the Holidays Act is unworkable in many situations. Anyone who is intimately familiar with payroll, including all MBIE staff, knows that there are intrinsic problems with the Holidays Act which makes it unworkable in certain circumstances, and I can provide you with many examples of this. The witch-hunt being conducted by your department shows little regard for this fact. The ministry also seems oblivious to the fact that a massive majority of employers want to do right by their employees and in many cases are very generous to their staff.

The NZ Payroll Practitioners Association (NZPPA) do a fantastic job of assisting its members with all issues relating to payroll and run very informative training courses dealing with all aspects of payroll. MBIE should be working closely with this organisation in a united approach to resolving issues relating to payroll, but instead MBIE refuses to cooperate with an organisation that justifiably challenges the MBIE’s lack of direction and its constant flip-flopping in its interpretation of various aspects of an unworkable Act. I am sure you are aware of the NZPPA’s constant criticism of your department; criticisms which, in my opinion are completely justified. These are well documented on the following website… https://www.linkedin.com/groups/4615946 If you need further information regarding the complexities of the Holidays Act and the difficulties that NZPPA members constantly face in their dealings with your department, I am sure that the CEO, David Jenkins, will be happy to provide this to you.

Everyone is aware of the problems experienced with the teachers’ payroll, and while it was convenient to blame the Novopay software, this was only a small part of the problem. As you well know, the MBIE payroll and the Police payroll have had problems, and likewise thousands of companies throughout the country are dealing with the same issues. The difference between a government department and a private company trying to resolve the perceived problem is that many private companies do not have the resources to deal with this, particularly when the MBIE issue improvement notices which require every single leave payment made in the last 6 years to be recalculated, they give a ridiculously short time frame in which to achieve it, and then threaten legal action if they don’t comply by a certain date. And this would be just one item in a long list of requirements being requested by the inspectors, including the requirement to double pay holiday pay where employees have been paid 8% holiday pay each pay, where the inspector deems that they are not actually casual workers. Also, many companies do not have the financial resources to comply with the demands of the ministry, because of the complexities of doing so, and as a result many companies face bankruptcy. How is this helping the employees, many of whom will lose their jobs?

I am aware of the laws around holiday pay and related matters because I have been working in the industry for over thirty years, and I can tell you that in many cases it is not possible to comply with the law. If you ask an MBIE Inspector how to apply the law in certain situations they will not tell you, because they can’t. Their response is to just refer you to the Act. But nevertheless, they require everyone to comply. This situation is ludicrous.

I have decided that I can no longer assist employers who have been audited by the MBIE, as I am not prepared to be associated with a manifestly unjust process which is potentially driving many companies to the wall. My conscience will not allow me to take money from victims of this ill-conceived process which is completely flawed and immoral, and I have decided that the best way of helping those employers who are being victimised by a government department is to bring this injustice to your attention, Mr Lees-Galloway.

If the government wanted to be even-handed, seeing the vast majority of employers would be deemed by the MBIE to be non-compliant with the Act in some way, it would insist that every single company in the country be audited. It would obviously be nonsensical to do this, as the Act is the problem, not the employers, but the ministry seems to feel it is OK to persecute a growing number employers, despite the flawed Act.

The government needs to immediately place a moratorium on requesting employers to comply with the Act until the Act is sorted out, and then to only apply the provisions of the new Act from that point forward, except in cases where employers have clearly been flouting the law for pecuniary gain. As I have mentioned, the vast majority of companies in New Zealand have no intention of ripping off their staff, and this whole exercise is so unjust and counter-productive. The problem is the Holidays Act, not the employers, so please put a stop to this nonsense before more good, honest business owners are damaged both financially and emotionally.

Setting up yet another taskforce to look at the Act will not cut the mustard. There has been a taskforce before, but it has failed to agree on a solution because it was made up of vested interest groups, rather than a neutral taskforce of payroll professionals which is prepared to throw out the Act and start from scratch.

The legislation needs to be simple, and needs to include a ‘percentage of gross’ option, slightly modified to offset any shortcomings in this particular methodology. The current legislation seems to have been formulated on the basis that employers will try and rip off their staff at every opportunity. This is not the reality in New Zealand, and this is not the basis on which laws should be formulated or enforced.

When the legislation has been fixed and is workable, the MBIE should then become involved in helping employers to understand the law. That way, it would be acting in line with its name, the Ministry of Business Innovation and Employment. There is nothing innovative in the persecution of the very people it should be assisting.

Minister, you need to make a bold stand here, and stop this nonsense. The consequences of not doing so are dire.

Yours sincerely

Eric Neal (contact email:[email protected])

Leave a Reply

ePayroll FREE Weekly Newsletter

Payroll News, Tips and Advice Delivered FREE to your inbox. Privacy Statement: your email address will never be revealed to third parties.
Click here to access the ePayroll Archive