Payroll compliance with the Holidays Act

Documents have been released outlining background information around payroll compliance issues with the Holidays Act.

The documents outline a range of work undertaken by the Ministry of Business, Innovation and Employment (MBIE) to build knowledge of the compliance issues with the Holidays Act and take progressive action as the understanding of the exact nature of the issues has narrowed and improved.


Audits and investigations

In addition to the dedicated project that first explored the issue, the Labour Inspectorate commenced 51 “Payroll audits” 1 from 2012 to early April 2016, including the first ten new proactive audits, targeting large, at-risk employers. As well as resolving specific issues, this work will help MBIE gain a more accurate and factual understanding of the non-compliance.

The additional proactive work was made possible by Budget 2015 funding which significantly increased MBIE’s resourcing for its education and enforcement activities. The passage of the Employment Standards Legislation Bill has also strengthened Labour Inspectorate powers and the record keeping requirement which was identified as a key tool to assist Holidays Act compliance.

MBIE is establishing a series of work streams to work with others including payroll providers, employer and employee representatives and business service providers to improve payroll functionality, quality assurance and training in payroll delivery.

Legislative reviews

The first priority is to focus on these non-legislative solutions to addressing compliance. Previous reviews of the Holidays Act have not reached agreement between unions and employers on how to reduce the Act’s complexities – as simplifying calculations inevitably produces winners and losers.

Cabinet therefore decided not to proceed with another review of the Act last year, opting to monitor the situation while the Labour Inspectorate in MBIE continued its enforcement and engagement work to address non-compliance.

Size of the problem

The first project MBIE carried out included a desktop calculation to arrive at a broad range of estimates as to the size of the problem. The project report cautioned however that “robust and precise empirical estimates of the size of non-compliance are not possible due to limited data on business operations at a detailed level”.

As at April 2016, arrears have been calculated in respect of 10 of the 28 completed investigations so far. Arrears (which can include underpayments going back several years) have ranged at the low end from an average $70 per affected worker in one organisation to around $1800 per affected worker in another organisation.

1 “Payroll audits” are audits that are testing whether, or finding that, an:

Employer is systematically calculating employee leave entitlements and payments for annual holidays, public holidays, sick leave, and bereavement leave in respect of multiple employees in a manner that is non-compliant with the Holidays Act 2003.