Author: David Jenkins, NZPPA CEO

For almost every question we receive through the NZPPA PayTech AdviceLine, we eventually find ourselves referring members back to the employee’s employment agreement. While legislation sets the minimum standards, the employment agreement often determines how those standards are applied in practice.

The reality is simple: the employment agreement is the most important document for payroll.

Payroll professionals need more than a basic understanding of employment agreements. They need to understand how employment terms are applied in payroll, how they affect compliance, and whether payroll systems can accurately administer what has been agreed between the employer and employee.

In this article, I want to focus on two areas:

Key aspects of the Employment Relations Act 2000 that payroll professionals should understand. Why employment agreements are critical to payroll compliance and what payroll should be reviewing before an agreement is issued.

As always, I have tried to write this in payroll plain language. Some areas overlap with other legislation, including the Minimum Wage Act 1983, Wages Protection Act 1983, and Holidays Act 2003.

Key Areas of the Employment Relations Act That Payroll Should Understand

1. Good Faith Obligations

The Employment Relations Act requires employers and employees to deal with each other in good faith.

Payroll Impact

Payroll should: Correct payroll errors promptly. Communicate payroll issues honestly and transparently. Respond to employee payroll enquiries in a reasonable timeframe. Provide payroll information when requested. Avoid withholding payroll information from employees.

Risk: Failure to act in good faith can contribute to employment disputes, employee complaints, and personal grievance claims.

2. Written Employment Agreements

The Act requires every employee to have a written employment agreement.

Payroll Impact

Payroll relies on employment agreements to determine: Pay rates and salary arrangements. Hours of work. Overtime provisions. Allowances. Authorised deductions. Leave-related provisions. Pay frequency.

Risk: Poorly drafted employment agreements are a common cause of payroll errors and compliance failures.

3. Individual, Fixed-Term and Collective Employment Agreements

The Act provides for individual employment agreements, fixed-term agreements, and collective agreements.

Payroll Impact

Payroll must correctly administer: Different pay rates. Overtime arrangements. Allowances. Leave entitlements. Deduction arrangements. Special conditions contained within collective agreements.

Risk: Applying the wrong agreement can result in underpayments, overpayments, and compliance breaches.

4. Availability Provisions

Employment agreements may contain availability clauses requiring employees to be available for work outside their normal working hours.

Payroll Impact

Payroll must understand: Availability payments. Compensation requirements. On-call arrangements. Standby payments.

Risk: Failure to correctly administer availability provisions can lead to employee underpayments and minimum entitlement breaches.

5. Guaranteed Hours of Work

The Act includes requirements relating to agreed hours of work and employee availability.

Payroll Impact

Payroll requires clarity regarding: Guaranteed minimum hours. Contracted hours. Additional hours worked. Casual versus permanent employment arrangements.

Risk: Misunderstanding hours of work can affect payroll calculations and minimum wage compliance.

6. Employee Protection Provisions

The Act contains protections relating to business restructures, contracting changes, and employee transfers.

Payroll Impact

Payroll may need to manage: Transfer of employee payroll records. Continuity of service calculations. Leave balances. Historical earnings information. Employee setup and migration processes.

Risk: Incorrect handling of payroll information during a transfer can affect employee entitlements and create compliance issues.

7. Record-Keeping Requirements

The Act requires employers to maintain wage and time records.

Payroll Impact

Payroll records should include: Employee details. Hours worked. Days worked. Pay rates. Gross earnings. Deductions. Leave records.

Risk: Inadequate records make it difficult to demonstrate compliance when challenged by an employee, Labour Inspector, or during an audit.

8. Flexible Working Arrangements

Employees may request flexible working arrangements under the Act.

Payroll Impact

Changes may affect: Hours worked. Work patterns. Public holiday entitlements. Leave calculations. Payroll system configuration.

Risk: Approved flexible working arrangements are often not reflected in payroll records or payroll system settings, creating compliance risks.

Employment Agreements: Common Payroll Concerns

When reviewing employment agreements, NZPPA regularly sees the same issues creating payroll problems:

Poorly Written Employment Agreements Many agreements contain vague wording that fails to reflect how work is actually performed or how payroll systems operate. Ambiguous Hours of Work Hours-of-work clauses are often outdated, unclear, or inconsistent with actual working arrangements. Unclear Overtime Provisions Overtime calculations are sometimes described using complex wording that is difficult to interpret and administer consistently in payroll. Incorrect Deduction Authorisations Deduction clauses may be incomplete, vague, or inconsistent with the requirements of the Wages Protection Act. Inadequate Record Requirements Employment agreements and payroll processes do not always support the record-keeping obligations required by legislation. Failure to Update Payroll Following Agreement Changes One of the most common issues occurs when employment agreements are updated but payroll settings are not. As a result, employees are paid based on outdated information rather than their current contractual arrangements.

Getting Employment Agreements Back on Track

Just as payroll should be audited, employment agreements should also be reviewed regularly for both legal compliance and payroll practicality.

From a payroll perspective, the following questions should be asked when reviewing any employment agreement:

Can the pay provisions be accurately administered within the payroll system? Are the hours of work clearly defined? Are overtime provisions clear and measurable? Are allowances clearly specified? Are all deductions properly authorised? Is the pay frequency clearly stated? Are payroll-related terms unambiguous? Can payroll report on and demonstrate compliance with every obligation created by the agreement? Does the agreement reflect the employee’s actual working arrangements? Can payroll maintain the records required to support the agreement?

In conclusion, under the Employment Relations Act, the employment agreement is arguably the most important document affecting payroll.

For this reason, payroll professionals must ensure they have a strong understanding of employment agreements and actively raise concerns where payroll requirements have not been considered. Payroll should never be expected to simply “make it work” after an agreement has been issued. Good payroll starts with good employment agreements.

A well-written employment agreement clearly defines the employment relationship, reflects actual work practices, can be administered within the payroll system, and allows payroll records to demonstrate compliance when required. Ultimately, payroll should be involved in reviewing employment agreements before they are issued—not after payroll problems have already been created.

NZPPA – Supporting New Zealand Payroll Since 2007