HomePARTNER ARTICLESNavigate Holidays Act (2003) payroll compliance with these 5 key tips

Navigate Holidays Act (2003) payroll compliance with these 5 key tips

By Richard McLean

With part time and variable hour staff, New Zealand retailers often face difficulty in achieving complete compliance with the Holidays Act (2003). During Labour Inspectorate audits carried out between 2012 and 2017, more than 70% of NZ businesses were found not complying with at least one aspect of the Holidays Act (2003).

What exactly causes non-compliance?

It goes without saying that the Holidays Act lends itself to multiple complexities and interpretations; but payroll many payroll software providers also play an equal role in compliance issues for NZ businesses.

To help retail managers and payroll administrators achieve Holidays Act compliance, we’ve listed five ways to avoid problem areas in payroll software when managing NZ payroll.

Get the configurations right

Many NZ payroll systems make it difficult for payroll practitioners to achieve compliance without manual workarounds. Payroll practitioners must find software that allows them to set employees up with unique arrangements, entitlements, deductions and payment rates. NZ software also commonly stores annual leave in weeks days or hours than the legislatively required weeks. MBIE advises that keeping leave balances in hours or days can lead to non-compliance if work patterns change. Software which stores annual leave in weeks and determines employee entitlements at the time they take leave is best practice.

Set up calculations for the individual

Payroll practitioners should avoid software that applies the same default calculations for every employee irrespective of individual work arrangements. Payroll technology should allow users to import historical data and configure an employee’s working week as per their employer agreement. Practitioners should also ensure the correct pay rate/leave templates are in place for each employee, to result in accurate calculations.

Manage leave balances with compliance

According to the Act, an employee’s annual holidays leave balance should be 4 weeks only upon completion of their first 12 months of employment. However, employers obviously want to keep leave liabilities down and want to give their employees a break before their 12 month mark. Employers and payroll professionals must be very careful that their payroll system is actually meeting the requirements of the Act so they do not end up with additional, unexpected issues.

It is quite standard to see an employee’s annual holiday balance accruing and shown on payslips before the 12 month employment mark, but the calculation of this accrual is often not correct in traditional payroll systems.

Just like when an employee takes annual holiday at the 12-month mark from their 4 weeks of entitlement, the greater of Average Weekly Earnings (AWE) and Ordinary Weekly Pay (OWP) must be done. The issue here is that AWE is a 52-week average divided by 52. If the employee has not been continuously employed for 12 months, the divisor for AWE must reflect the time that the employee has actually worked (whole or part weeks). Many NZ payroll systems don’t reduce this divisor and this either goes unnoticed, or if the payroll admin does check and realise, they will have to do manual workarounds to fix this.

Assess your calculation methods

Leave calculations require consideration of certain set circumstances like:

  • Employee’s ordinary weekly pay (OWP) at the beginning of the annual holiday 
  • Employee’s average weekly earnings (AWE) for the 12 months just before the end of the last pay period before the annual holiday 
  • If a public holiday falls during an annual leave period 

Accessing a breakdown of calculations helps payroll professionals stay informed on the accuracy of data produced. Having a record of the breakdown of the calculations is also necessary for employers for auditing purposes and employee queries.

Have one source of data for record keeping

The Act requires employers to keep six years worth of records of employee hours and leave entitlements. Software that doesn’t include time and attendance and employee self service features makes this challenging. Outdated processes and systems often result in businesses using paper processes, which make record keeping extremely difficult, and collecting data very frustrating.

For best practice, retailers should ensure they have one source for all payroll related data including timesheets and leave requests. Seeking an all-in-one platform for payroll, time and attendance, employee self service and workforce management will not only ensure accurate and up to date data for compliance purposes, but reduce costs on multiple systems too.

Achieve compliance confidently with KeyPay

With the crucial role payroll software plays in compliance, it’s important to seek sophisticated technology that can manage complex rules and calculations whilst providing justification for its methods. Unless retail businesses embrace the right technology, they will always run the risk of human error and non-compliance when dealing with the Act. 

KeyPay is New Zealand’s all-on-one payroll solution for retailers. With KeyPay’s rostering, online timesheets and employee self-service/time clocking apps, retail business owners can better manage their staff, remove paper processes, and ensure compliant holiday pay entitlements for their variable hour employees.

As a partner of Retail NZ, KeyPay is extending its members’ offer to readers of The Register. Those using KeyPay for the first time will receive an exclusive 60 day free trial using promo code RETAILNZMEMBERS

Just sign up for a free trial, and enter RETAILNZMEMBERS upon adding your business to gain free advanced access for 60 days.
Get in touch: support@nzpayroll.co.nz

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