Holidays Act Review – Why payroll providers should not be involved in the review process

Article by: David Jenkins, NZPPA CEO

In the terms of reference for the recently announced review of the Holidays Act, the Minister states that payroll providers and other private sector organisations will be involved “in the design and testing of options” on making the Holidays Act workable. On the face of it this looks like a logical step to take as one of the issues with the Act is that it cannot easily be applied to a payroll system but again it has been put forward by people that don’t understand payroll and the issues we have been facing with payroll providers that are one of the factors with why the issues with the Holidays Act has actually happened and will continue to happen until there is real action taken to put more responsibility and liability on payroll providers in making their payroll system to have the ability to meet the requirements of the Holidays Act 2003.

Firstly, I need to state that there are some very good payroll providers that are actively ensuring their payroll systems provide a range of options to help the employer try to meet the requirements of the Holidays Act (if any payroll system can).

In this post I want to firstly cover some of the current issues with payroll providers in NZ. Secondly, I will look at why a select group of payroll providers should not be involved in the review of the Holidays Act.

Currently NZ is in a unique situation where an employer can easily spend $100,000 or more on a new payroll system and from day one it is non-compliant. And there is no comeback on the payroll provider for this major risk to the employer.

Here are just some of the issues that employers and payroll face with payroll providers:

  • There is no certification of payroll systems in NZ and this has meant we have a range of payroll systems being used that are not fit for purpose or compliant with what is required in legislation (not just regarding the Holidays Act). A standard would create a key set of calculations that a payroll system could be assessed, certified or audited against. When you are talking about labour costs, one of the largest costs a business has, should we not have some sort of measure to ensure payroll systems are demonstrably compliant?

  • Several payroll providers have never moved on from the old Holidays Act 1981 and this can clearly be seen with the system not linking to the present Holidays Act in regard to terms, jargon and the calculations being conducted. For example, there are a number of overseas-designed payroll systems with not even a basic understanding of NZ legislation, especially the Holidays Act. These are being used overseas to process NZ payroll (NZPPA deals with the fallout from this all the time). It is common even in NZ-based payroll providers to have systems with calculations that don’t relate to anything stated in the Holidays Act. And most payroll systems still only use hours as the base time interval with just a few payroll systems using weeks and days as the Act requires.
  • Many payroll providers hide behind the defence that the system is setup based on their client’s instructions, so they cannot be held accountable. You will find this when you approach them to seek help once issues are discovered. This is one of the biggest cop outs of the payroll industry and must stop. The Act needs to make payroll providers more accountable for the software they supply, so it creates balance between the provider and users of their systems. Of course, there are payroll systems setup which totally disregard the payroll provider’s initial advice and legislative requirements and responsibility should sit firmly with the employer in that situation.
  • Many payroll providers will only change their systems when legislation states a change is required. This can mean the system has gaps (usually for payroll to create manual workarounds) because they don’t see it as a requirement to provide this extra functionality for the cost involved. A typical example of this is recordkeeping in regard to the wage and time (Section 130 ERA) and holiday and leave (HA S81) requirements. Many employers think that the information required would automatically be held in their payroll systems, but many have been caught out only to find it is not and there is no legal requirement to do so. But as the records are so vital for compliance, they should be included, accessed and provided from payroll.
  • Lack of support and service from payroll providers is a major issue for many employers and payroll. We constantly get reports of employers going to their providers to raise issues with the Holidays Act and the provider all of a sudden does not want to know them. It gets even worse when the employer needs things from their system that they can’t access and the payroll provider hinders this by not providing the tools or resources to help the employer in their time of need, except at a price. A number of providers use cheap labour (overseas outsourced payroll), getting what you paid for, along with high staff turnover results in staff members not having any real understanding of the legislation when processing an employer’s payroll or assisting in the setup of the payroll system to meet an employer’s requirements.
  • Many payroll providers supply payroll systems that have little or no transparency of data. This means you can’t get to see what the system is doing or even get that data out and check how it is being calculated in any meaningful way. Payroll needs transparency to question what the system is doing to resolve issues before they become anything else. Having a system in which you can see the calculation and then drill down to see what went in and how the outcome was provided is essential for payroll to have full confidence in what the system is doing. Many payroll systems cannot even provide this.

Should payroll providers be involved in the review?

So, the second part of this post is about having payroll providers involved in the Holidays Act review. NZPPA’s position is that this is wrong. We saw this when MBIE created the Payroll Functionality Group where five payroll providers were part of the group, but all others were excluded.

NZPPA fielded calls from numerous payroll providers while this group was working through the MBIE directed programme. They were not communicated or consulted with until the end of the process as part of a pretend consultation period (MBIE style).

The Minister has stated in the terms of reference that payroll providers will be used to test the options that come out of the review, but it does not mean those options will be used in any legislative change. This is pure rubbish. If the review is not going to back an option that works then it just undermines the whole review as a complete waste of time. If the review can show an option has been tested and proven to meet its aims, then this should be supported by government and become legislation, so let’s get real on this to start with.

Having a select group of payroll providers involved in the review raises a range of issues such as how this group will be selected as the biggest does not mean the best or even compliant. Some of the largest payroll providers in NZ and overseas are at the top of the list for non-compliance, lack of client support, or willingness to change their system to meet legislative requirements. Being involved in the review would enable them to highlight areas that benefit their commercial interests and not the needs of employers and payroll overall.

MBIE is in the process of looking for a new payroll system to replace their existing one. Will their new provider be a member of the review group? The commercial or competitive advantage to the payroll provider of being in this group is totally unfair to all other payroll providers and all the employers that use other payroll systems. The Minister is totally wrong in stating that the timeframe for the review finishing and any legislative change will create a level playing field, so all providers can make the changes and get their product to meet the new requirements. This review with the government as one of the parties means it crosses the line to when a commercial entity gets early access to a future development and is promoted by association with government. If an employer is looking for a new payroll system, they would go with a payroll provider that has been selected and involved in the review process as it looks like they are supported or even promoted by government. This is wrong and is another reason why payroll providers should not be involved in the review process.

The issues with the Act are to do with having calculations and terms that are not set in stone but are open to interpretation. With taxes calculations are generally clearly and easily defined without having multiple interpretations such as the Holidays Act currently provides. For this reason, we don’t need payroll providers involved in the review as they base the setup on what is stated in the legislation. We need the legislation corrected to state what has to be done without interpretation so calculations are easy to apply and conduct. Payroll providers (all of them) should have their chance to be involved and make submissions during the select committee process.

So in conclusion, yes the Act needs to change but this should be driven by employers and unions along with their partner in the review, the government. Having a select group of commercial payroll providers involved is sending the wrong message and won’t aid the process until all payroll providers can be involved. This review already has limitations on what it can achieve and if payroll providers are involved it will further hamper a workable outcome that is urgently required.

NZPPA supporting payroll since 2007!

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