Payroll blunders cause political pain

6:22 am on 1 April 2016

Power Play - The best way to rile employees is to muck up their pay, and that's exactly what could be happening to thousands of New Zealanders in both the public and private sectors.

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Photo: 123 RF

You only have to look back at the Novopay debacle under the Australian company Talent2 to see how great a political liability payroll errors on a mass scale can become.

It cost the National-led government a significant amount of money and resulted in the creation a new government-run company to take over the running of school payroll system.

That controversy had only just settled down when the possibility of another payroll scandal threatens to blow its lid.

The most recent problems centre around a 2003 law which requires employers to give employees the higher rate of holiday pay or annual leave, whether it is calculated on a daily or weekly rate.

If the organisation's default system is to calculate on weekly earnings, but a higher rate would be awarded if that was done based on the days that employee worked, then the employee's wages would be in arrears.

The types of employees most likely to be affected are those who work variable hours from week to week, so those working shifts, or on casual contracts - that means industries such as fast food, horticulture and hospitality.

And because the Holidays Act covers both the private and public sectors, the scope of the problem, as yet unquantified, could be huge.

The political blame game has already started - Labour demands to know why the government has left this issue simmering for so long without addressing it, and wants an independent inquiry.

Minister for Business, Innovation and Employment Steven Joyce is "scratching his head" why the Labour government was not more proactive about ensuring public entities and private companies were not made aware of their new obligations after the 2003 law change.

But regardless, the government is reluctant to change the law, arguing that would result in people receiving fewer entitlements.

Senior ministers are making soothing noises, saying this should all be left to the responsible agencies, including the State Services Commission and the Labour Inspectorate.

The only problem with that is the Labour Inspectorate is set within the super ministry MBIE, one of the public sector agencies currently grappling with payroll problems potentially stretching back more than a decade and affecting thousands of employees - not exactly confidence inspiring.

The scale of payroll errors within the public sector is bound to come out one way or another, because of the transparency demanded of the government agencies and the publicity now surrounding this story.

But the other side of the coin is the private sector; it certainly has an obligation to its employees but realistically it will be up to private companies to assess their payroll systems and disclose any arrears as it would be difficult for individual employees to gauge whether or not their wages have been paid correctly.

The Labour Inspectorate is carrying out specific investigations into Holidays Act compliance but when it released the information about its 20 investigations showing 24,000 people had been underpaid it would not say whether that was a mix of public and private employees, or indeed if any private sector companies were involved.

Mr Joyce's office later confirmed there was a mix, but said a breakdown of how many in each sector was not available.

The general political consensus from the government's side is a law change would just be too hard.

They say Labour was warned ahead of the 2003 law changes of the possible consequences that have indeed come to pass - in fact the current Workplace Relations Minister Michael Woodhouse says he was one of those submitters.

Ministers are also chorusing the line that when this government tried to have fresh look at the law in 2010, unions blocked any attempt to change the law because the only outcome would be a reduction in employees' entitlements.

Usually political problems such as this are fixed with a speedy law change or a government mandated inquiry.

Not so this time it would seem, but government ministers will be hoping this does not turn into a rerun of the Novopay scandal.

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