It is simply not credible that nearly every major employer and payroll providing service made a “mistake” in calculating their annual leave entitlements.
It is also clear that the problem is so large the government needs to form a working group of employers, payroll providers and unions to impose a solution that protects workers legal entitlements.
The major problem that Unite has faced is the employer’s failure to calculate annual leave as the higher of either average weekly pay or what is called “ordinary weekly pay”
This is an important concept. It is needed because sometimes a worker’s status changes and when they take leave it should reflect their improved status.
For example, I may start work as a part-time worker and then become a full-time worker. When I take my holidays my leave should be paid at the full-time hours.
The term “ordinary weekly pay” has existed in law in the Holidays Act since 1944 when all New Zealand workers first got two weeks annual leave on “ordinary pay” by law. It was defined then as:
“Ordinary pay”, in relation to any worker, means remuneration for worker’s normal weekly number of hours of work calculated at the ordinary time rate of pay.
the holiday pay of a worker in respect of any period of his annual holiday shall in any event be at a rate not less than the rate of his ordinary pay at the date when he begins to take that period of holiday.
It specified that it should include normal commissions and productivity or incentive-based payments and overtime. It excluded one-off or exceptional payments. Those clarifications seem only logical and fair.
It also introduced a new formulation to establish what an ordinary week’s pay was when it was not clear.
This had become necessary in my view because of a proliferation of “zero-hour” type employment agreements where workers hours varied radically from week to week.
If someone worked 10 hours a week at the beginning of the year and was working 30 hours a week at the end of the year before taking annual leave, then their annual leave payment should be at the “ordinary weekly pay” of 30-hours a week.
But, if a worker has no regular hours then the employer might have difficulty figuring out what an “ordinary weekly pay” was. The new Act specified that in those circumstances they have to choose the higher of the average for the year or the average for the four weeks before taking leave.
The Act is very prescriptive on what the employer needs to do. It states:
2. Where ordinary weekly pay is unclear for any reason, the Act provides a formula for working it out. Ordinary weekly pay is established by:
going to the end of the last pay period
from that date, going back
– four weeks, or
– if the pay period is longer than four weeks, the length of the pay period taking the gross earnings for that period deducting from the gross earnings any payments that are irregular or that the employer is not bound to pay dividing the answer by four.
What we have discovered is that nearly every employer we deal with, whether they use in-house or external payroll systems, calculate annual leave as an hourly, not weekly entitlement. If I work 20 hours this week I should have around 1.5 hours added to my leave balance.
There may be some justification for this as leave is being “accrued”. This is the period after starting work but before the anniversary date of your employment. This leave balance is a liability the company must pay if you quit.
Once you have worked for an employer for a year, however, and each year thereafter, the leave becomes and “entitlement”.
The difference is important. “Accrued leave” cannot be taken without the agreement of the employer. A leave entitlement is a right that cannot be refused by the employer. They can only negotiate over when it is taken.
Recording leave in hours is completely misleading for workers.
Many workers use up their “accrued” or “entitled” leave “hours” to top up miserably low wages.
I have seen pay slips where there is an annual leave payment even when the workers has done a full week’s work. Employers ignore the legal obligation to only allow workers to cash up a week of their annual.
Workers often use up their annual leave in bits and pieces during a year and have no chance of actually having a proper holiday.
Even if the leave being taken is from the accrued hours it should still be paid at the “ordinary weekly pay” which very few people know about.
Nearly every pay slip we have records leave in hours. Most employers then either allocate hours to staff taking leave in some mysterious process or ask the employee how many hours leave they want.
Lawyers who have joined the public discussion have pointed out that it is impossible to comply with the law when using this method of calculation. As an email newsletter from Hesketh Henry explains:
Other problems arise from payroll systems that are configured in hours. The Holidays Act has no reference to hours and instead calculates holiday pay and other types of leave in weeks and days. However, many payroll systems and employee payslips describe entitlements in hours. Why?
We have worked for years to remove references to hours of holidays from entitlements and employment agreements because they are, quite frankly, wrong. However, despite the legislation referring to days and weeks, and despite employment agreements mostly and correctly referring to days and weeks, and despite many annual salaries instead of wages by hours, payroll systems still seem to get configured in hours. Recording and expressing holiday entitlements in hours is not complying with the Holidays Act or any employment agreement that refers to days and weeks. Calculating an annual salary on an hourly basis would seem, on its face, to also breach the employment agreement.
So what can workers do?
Check your payslip. If annual leave is recorded in hours then it is most likely the system being used is short changing you.
Check your last annual leave payment. If the hourly rate is not higher than your ordinary rate to reflect allowances and overtime, then the system is probably cheating you.
You should ask your employer to record all leave weeks or days on a pay slip. This should apply to accrued leave as well.
You should demand that your employer gets legal advice and have an external auditor brought in to check their systems. If the employer is using an external provider of payroll services you should demand a written assurance from the provider that their systems have been externally audited to be compliant with the law.
It seems that the problem is so massive that only a government led process can assure all workers in New Zealand are being paid properly.
The government should convene a working party involving unions, employers, payroll providers to devise solutions that can be imposed on all employers.
No employer should be allowed to claim it is all too complicated. That is a lie.
There has been large-scale theft. It appears to be deliberate. Workers must be paid their full entitlement going back as many years as is necessary.
National Director
Unite Union
There are going to be many who have no chance to reclaim their underpaid holiday pay where the employer has closed the company or just disappeared.
And can you believe this from Payroll Practitioners Association chief executive David Jenkins?
“Every day (the) organisation was contacted by companies bamboozled by the Holidays Act.
Payroll providers were feeling bullied and intimidated by officials who were failing to advise them on how to comply with the Holidays Act.”
I believe he’s making that up.
I actually do believe David Jenkins, but I imagine the people contacting him were small businesses genuinely confused by the language trying to parse it, (it confuses me a bit, and I can usually read legislation pretty well for someone with zero law training) rather than large employers who should be hiring people in HR and law who can tell them the answer anyway. It’s unbelievable that none of those large businesses never happened across the mistake- but that doesn’t of course mean that it was a high-level policy to ignore the mistake. It could have simply been a deliberate failure to up-line this as a concern to suppress costs, but that does point to a failure in culture either way.
This isn’t exactly to excuse those small businesses however- they should have been getting advised by their consultants/mentors/HR software/etc… as to what the correct practices in New Zealand are. That’s why resources exist to support small businesses, and why the government makes lots of them easily accessible.
NEWS FLASH!!! Hundreds of thousands of workers mistakenly over payed for years.
Why do we never see this headline????
Didn’t we see a similar headline over the last few years with the Novapay fiasco? And haven’t debt collectors been sent to collect?
That’s probably a good precedent to follow in this situation.
And INCIS the Police Computer system, useless politicans and government employees wasting tax payers money, nothing changes.
Because employers probably take their lead from the government, who will hound you to the ends of the earth if you owe them money, but if the shoe is on the other foot, they suffer a sudden, inexplicable bout of amnesia. And when they’re busted, it just so happens that cheating you out of your pitiful wages was “an unfortunate oversight” which they “deeply regret”.
And this why I laugh bitterly whenever I hear an employer being hauled over the coals by a union, having a big old whinge about “a lack of good faith” and “union harassment”. If we honestly felt we could trust you not to try and stiff us out of what we’ve earned by hard graft and the sweat of our brows, then great — good faith and mutual respect all the way. But time and time again we’ve seen employers cheat their workers through deliberate chicanery because they feel they can get away with it. And getting away with it is so much easier when you have a government whose track record on employment law, labour relations and paying people what they’re owed is, frankly, abysmal.
I’d love to be able to trust my employer to do the right thing by me. But I don’t. And I most definitely don’t trust this government to make any sort of concerted effort to remedy the situation.
Yes, the govt seems to love going after the little guys for a thousand here, a thousand there, while the corporates stiff the country for millions and it’s like, yawn, where’s morning tea?
are we all entitled to back pay since they diddled us what do you want to bet JFK arrives with some retrospective stealing legislation to diddle us again.
MBIE was responsible also for the last stuff up over incorrect pay to thousands of teachers remember?
So this time Steven Joyce should be fired for a repeat mess-up, as he is the one responsible for setting up this oversized white elephant of a beaurocratic monster called MBIE “Ministry of Business Innovation & Employment” we should more accurately call “Ministry of Bullies, Intimidation & Enforcement” instead for MBIE, so go Mr Joyce and let some one better run the crappy MBIE, and I hope the next Government dismantle this monster when they take the Government over next year.
Our company (in community health care and home management) just transfers the work to another day and then records that holiday days pay as “not worked”.
You mean for example, if a person works 2 hours for four days of the week, the company records that as them having worked one 8 hour day?
And what about the income tax? I wonder… if one renounces citizenship of NZ Inc. and forfeits passport, could one refuse to pay income tax… and, is the NZ IRS, like the U.S.IRS just another successful scam?
http://mainerepublicemailalert.com/2016/04/01/the-best-kept-secrets-of-the-irs-pgs-122-123/
The answer has to be yes, it is a scam.
What are the chances that David Seymour (with National’s approval) will right now be working on a bill that will effectively wipe any employer’s obligation to back pay the shortfall to NZ employees.
It will be introduced under urgency and Peter Dunne will be bribed to support it by National not putting up a candidate in Ohariu next year.
How to get a fair go from your boss? Simple. JOIN YOUR UNION.
Now watch the Key government introduce retrospective legislation to quash any moves by the Unions and individuals to claim what is currently legitimately theirs!
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