Work and Income has told Social Development Minister Carmel Sepuloni there were "isolated practice issues" relating to people being wrongly denied the benefit based on redundancy payments.
RNZ highlighted the case of an Auckland hotel worker earlier this month, who was told she would have to wait months for a benefit due to her Covid-19 redundancy payout. Her case manager said it was the way she had been applying the rules for many years.
Work and Income admitted the error but it raised deeper issues because staff may have been wrongly advising applicants about the impact of redundancy on the benefit waiting time for decades.
RNZ has been inundated with people from around the country claiming they were affected, with some cases dating back to the early 1990s. Last week Work and Income said 244 people had come forward to raise concerns. It has already contacted some people to say they will receive back pay after reconsidering their cases.
Sepuloni's spokeswoman said the minister knew the treatment of redundancy payments was complex. There were different ways the payments were treated in the welfare system and across legislation.
"The minister understands there were isolated practice issues and that quality assurance could have improved."
She had been told by the Ministry of Social Development (MSD) that its policy guidance, training and IT system contained no errors. A small sample was also assessed, and MSD found no systematic problem with how it dealt with redundancy payments.
"MSD has assured the minister that they will take steps to mitigate the risk of any practice errors going forward. The minister also understands that MSD is proactively encouraging people to get in touch if they believe an error has been made in their situation."
A former Work and Income case manager has told RNZ he challenged the 'accepted practice' while working in a regional North Island office during 2015/16.
At the time he had a client who had recently been made redundant and after the initial stand down period he believed he should receive the benefit.
However, his service centre trainer told him the client should not be receiving a benefit until his redundancy ran out.
"The whole focus was on churning through as many cases as you could and reducing the cost to the taxpayer. The first thing we had to do was nail down their entitlement date. If you had a redundancy this meant, wrongly, you waited beyond the two-week stand down period.
"When I was there the culture was focused on giving as little help as possible versus giving as much help as possible."
MSD's Kay Read, group general manager of client service delivery, said it did not believe there was a "widespread issue with the treatment of redundancy payments".
"We are committed to ensuring people who come to us for assistance get what they are entitled to.
"We reject the allegation that staff were encouraged to minimise cost to the taxpayer."
She said the treatment of redundancy payments was complex.
"Redundancy is not used in the calculation of entitlement date but is used to calculate the length of stand down period and may have an impact on the types of entitlements available.
"As part of our review we are assessing guidance to staff in relation to redundancy payments. When that review is complete we will be able to identify if any changes need to be made to prevent any chance of errors."
Read said Sepuloni would receive the review's findings. It was expected to be completed in the coming days.
Work and Income has recommended people call 0800 559 009. Staff would take initial details and someone would then call back for a fuller discussion.