Editorial: Holiday pay fiasco needs to be sorted

By some estimates, the amount owed to employees because of faulty payroll systems and misreadings of the law could run into the hundreds of millions of dollars. Photo / Martin Sykes

The one firm figure in the unfolding holiday pay fiasco is that six employers, including the New Zealand Police, owe staff $33 million in unpaid entitlements. The number of employees who are due backpay after investigations by labour inspectors already numbers 24,000, including 15,750 in the police force. The number is almost certain to grow because all 20 employers investigated for Holiday Act issues in the past four years were found to have breached the 2003 legislation. Investigators have a further 22 Holiday Act inquiries underway.

By some estimates, the amount owed to employees because of faulty payroll systems and misreadings of the law could run into the hundreds of millions of dollars. This figure seems high, but the problem is clearly widespread. Equally surprising is how payroll shortcomings reached this point where employers are having to scramble to rectify deficient systems and properly account for wages owed to staff in the public and private sectors.

The police are fortunate they are not facing a bigger bill. Breaches of the act can be punished with fines up to $20,000 per breach for companies, and $10,000 per breach for individual penalties. In this case the Ministry of Business, Innovation and Employment's labour inspectorate determined that the police response did not warrant further punishment.

The police case is central to this issue because its difficulties have been known for some time. The order to top up wages underpaid for statutory holidays, sick leave, annual leave and bereavement leave was made in April last year, which should have prompted firms to audit pay records, given that under the law employers are liable to ensure they are compliant.

A year on and the bills are piling up. MBIE inspectors plan more "targeted investigations" into shortfalls in holiday pay, lack of proper wage records and failures to include extras in leave calculations.

The cause of the payroll mess is not clear. Some critics blame the 2003 legislation, and it seems astonishing the 42 payroll investigations since 2012 did not sound alarm bells that the law was not working as intended. It appears the law has not caught up with changing work arrangements. More employees than ever work fluctuating hours, especially in the rapidly growing hospitality sector. A 9 to 5 day in many industries is the exception rather than the rule. It appears workers with irregular hours, flexible arrangements and casual contracts are most affected by the payroll problems. Together, these changes have added complexity to the law.

The State Services Commission is investigating how broad the problem is, as are Business NZ, the Council of Trade Unions and the Payroll Practitioners' Association.

Michael Woodhouse, the Minister for Workplace Relations, says changes to the act are not being actively pursued at this time. As the underpayment total mounts, he might have cause to change his tune.