Payroll Company Suggests Simpler Approach to Holiday Pay

Payroll Company Suggests Simpler Approach to Holiday Pay.

Online payroll company FlexiTime today broke ranks with other payroll providers and called for a change to the Holidays Act to make it easier for small businesses not using payroll software to correctly calculate Holiday Pay for employees.

Robert Owen, CEO of FlexiTime said, “We specialise in payroll for part-time, casual and flexible workers and we convert thousands of employee leave balances from other payroll systems each year. If your existing payroll lets you enter the total number of hours for each pay, but doesn’t know how many days that represents, then it’s not able to calculate Holiday Pay correctly. We see issues with Holiday Pay all the time.

“Currently the law requires you to calculate a rolling 52 week average of the daily pay for each employee. If you are not using a compliant payroll provider this can be very difficult and is one of the main reasons businesses with employees who work varying hours will be paying the wrong amount of Holiday Pay.

“We know that one of New Zealand’s most popular desktop payroll applications still lets you accrue Holiday Pay as 8% of gross earnings indefinitely. This is completely wrong and hasn’t been legal since the law changed in 2003.

“Some payroll software has been around for so long it lets you calculate Holiday Pay in a way that is no longer valid, MBIE’s recently highlighted payroll blunder being a prime example.”

FlexiTime has written to Workplace Relations Minister Hon. Michael Woodhouse to suggest an alternative method of paying employees for Holiday Pay.

“When the existing Holidays Act was reviewed in 2010 by a Ministerial Advisory Group representing both employers and unions, very few changes were recommended because both groups feared losing ground. This shouldn’t be about one side winning or losing, it’s about creating a fair system that is easy for everyone to understand. We have been actively blogging about the Holidays Act on our website payhero.co.nz/blog for the last year, recommending a change to make it easier for businesses.”

The approach suggested by FlexiTime is to combine Annual Leave and Public Holidays into a single entitlement.

“They do this in the UK and it makes sense because you no longer have 2 different rules to apply for the two types of holiday. We suggest that each pay the employee accrues 12% Holiday Pay. The balance is recorded as 12% of the duration worked and of the pay received.

When the employee takes a holiday, be it annual leave or public holiday, it reduces their Holiday Pay balance. The hourly Holiday Pay rate is simply calculated as the remaining dollar balance divided by the remaining hours balance.”

FlexiTime believes the approach would be fairer than the current system as it eliminates anomalies created in the Holidays Act when paying employees for holidays at the higher of the average pay rate from the last 4 weeks or the average pay rate from the last 12 months.

“It stands the Litmus test of being simple enough to calculate using pen and paper. Accountants would also be able to determine the exact amount of debt a business owes in Holiday Pay, instead of this amount potentially changing each week as the averages change. It’s also fair - when an employee is given a pay increase, the increase can also be applied to their Holiday Pay balance.”

“We’re always looking for ways to make businesses more efficient and productive. We believe this is a change the Government needs to make sooner rather than later.”