4. A fiendishly difficult payroll problem

Workplace Relations Minister Iain Lees-Galloway is set to announce the formation of a task force to address looming payroll and Holidays Act issues. Photo: Lynn Grieveson

A task force to tackle a payroll problem that has left thousands of workers out of pocket will focus on how to simplify legislation while ensuring workers don’t miss out.

The Government is set to announce the formation of the group tomorrow to review the Holidays Act, chaired by Victoria University law school professor Gordon Anderson.

Companies across both the public and private sector are facing huge back pay bills because of complications in calculating holiday pay, mostly in industries where part-time and casual work is common.

The massive scale of the problem has been known for several years - it was estimated in 2016 that total costs could exceed $2 billion - but no action has been taken to address the issue.

Corrections is the latest government department to set aside money for a potentially hefty bill, allocated $16 million in the Budget while it figures out how much it might owe both former and current staff.

Most experts believe the majority of employers are not in compliance with the complicated legislation governing holiday pay.

Last week, lawyer Christie Hall told Newsroom that until recently the Ministry of Business, Innovation and Employment had taken a relatively relaxed approach to the problem.

This had changed and organisations were starting to realise they needed to sort the situation out.

“We have not gone into a business in five years and not found it a problem.”

There are several issues causing miscalculations, including the fact there are multiple ways to calculate holiday pay.

An employee is entitled to whatever formula is higher, their ordinary weekly pay or a 12-month average.

Working out holiday pay for staff who don’t do standard 40-hour weeks is also difficult, while payments such as bonuses can also throw off the numbers.

Unravelling the act and finding a solution that meshes with modern working patterns while retaining entitlements will not be easy.

Changes to the act were investigated by Lees-Galloway's predecessor Michael Woodhouse but were abandoned because a way to simplify the system without reducing entitlements could not be found.

At the time Labour called for an independent inquiry into the problem.

Anderson said the act was a particularly difficult piece of legislation.

“It is essentially designed for manual payroll systems and, as you’ll know, we’ve got computers in the past 50 years.”

In the past few years, however, both business and unions had moved closer together on the issue after realising something needed to be done.

This would assist in reaching a solution, Anderson said, but what the impacts of that would be was still unclear.

“Obviously there are going to be real difficulties thrashing this out because the problems are quite complex.”

David Jenkins, chief executive of the Payroll Practitioners Association, said the act was “stupidly” complicated and agreed it needed to be rethought.

One example he felt was ridiculous was that a one-off bonus would increase a worker’s leave rate for the next 12 months.

But making changes would be difficult, as there would be some people who would be worse off.

“Basically because someone is going to lose. To simplify it would mean either the employer would have to pay more, or an employee would have to get paid less.

“You have to always pay the higher so if you’re going to get rid of all those calculations then potentially, in some situations, people could be getting paid less.”