Ignore the strategic benefits of effective payroll at your peril

7 Apr, 2017

Payroll can often be “out of sight, out of mind” – a back office function. If you don’t pay attention when issues do arise, they can blow up in your face spectacularly and quite publicly. Payroll issues have become a regular feature in the business pages here and overseas.

We have read about the high-profile Holidays Act 2004 non-compliance and subsequent remediation cases such as New Zealand Post and New Zealand Police, and large overpayments to groups and individuals that result in lengthy legal battles and negative media coverage.

We have also read about spectacular implementation failures that touched many lives, damaged employee relations and cost millions to resolve such as Novopay and at Queensland Health.

Payroll fraud has traditionally been top of mind with auditors and within businesses. However, as technology and legislation change, we are finding new developments that can impact heavily on human resource costs to businesses. Failure to comply with employment legislation, “leave leakage”, inappropriate sick/domestic leave and unapproved allowances are often underestimated and frequently undiscovered.

As far back as 2014 a survey conducted by law firm Simpson Grierson revealed more than 40% of practitioners found the Holidays Act difficult or very difficult to apply. Ensuring legislative compliance now often requires specialist skills to interpret the multifaceted, legacy terms and conditions needed to support complex employment environments and interpret complex employment and award agreements.

Changes proposed in the Employment Standards Bill 2015 do not address these issues and yet propose greater accountability, potentially making directors, agents and payroll practitioners liable for any breach of employment standards.

Despite all these high profile issues, there is little attention paid to training or certification of payroll practitioners in New Zealand, and many payroll practitioners work in isolation, struggling to remain up to date with changes in legislation, technology and best practice. This imbalance in power more often than not puts undue pressure on payroll practitioners, which can lead to compromises in compliance.

They are also often given sole responsibility for compliance and accuracy - and this increases the risk of intentional and unintentional errors resulting in both over and under-payments. The cost to defend, remedy and modify miscalculations can be crippling. The decision of the Employment Court to refuse Air New Zealand the right to recover a $70,000 overpayment to an employee highlights the cost of errors in interpreting and calculating employee wages.

Business owners and senior leaders must understand the strategic nature of payroll and payroll staff, and be assured their payroll practitioners and service providers maintain accurate, current processes and regularly monitored practice and policies, to avoid:

  • Non-compliance to various relevant legislation
  • Holidays Act breaches (BAPS - Bereavement Leave, Alternative Holiday, Public Holidays and Sick Leave) as well as Annual Leave payments
  • Overpayments, underpayments and incorrect award interpretation
  • Leave leakage
  • Payroll fraud
  • Personal liability for breaches of employment standards
  • Failure to comply with new payroll and taxation legislation

These can lead to reputational damage, financial liability and ER issues, to name just a few.