The government has recently announced a payroll blunder that has
left thousands of MBIE state sector workers underpaid. The same
issue affected the NZ Police and cost them $30 million to fix.
The root of this problem is likely to be widespread across many
private businesses. Your business could be in danger of making the
The amounts in each case are likely to be small but over a long
period of time and for a large number of employees they can add up
to thousands of dollars in back pay owing.
The issues generally relate to entitlements under the Holidays
Act 2003, and how a range of allowances and entitlements have been
interpreted and implemented. The specific areas that are likely to
require remediation are related to the payment of statutory
holidays, and the rate of payment for annual, sick and bereavement
The problem arises due to the method of calculating the payment
owing to the employee. There are different methods of calculating
what the employee should be paid for a specific day of leave.
Ordinary weekly pay, average weekly earnings, relevant daily pay
and average daily pay are all different methods of calculation used
for different types of leave. If the wrong method of calculation is
used it can result in an underpayment to employees.
If your employees receive bonuses, commission, work regular
overtime, or their hours vary day to day or week to week they could
The most common error is where waged employees, who work
variable hours or regular overtime, are incorrectly paid a standard
daily rate for statutory holidays, sick or bereavement leave based
on their ordinary working hours, usually eight hours per day.
The Holidays Act is complex legislation with strict rules and
calculations for different types of leave. We recommend you audit
your payroll system and obtain legal advice to ensure you are
paying holiday pay correctly.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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