14 Mar MBIE and the Holidays Act – A textbook case of Irony
“a state of affairs or an event that seems deliberately contrary to what one expects and is often wryly amusing as a result”
Last week it was revealed that the Ministry of Business, Innovation & Employment (MBIE) has not been correctly applying the Holidays Act to their own staff. I love the expression ‘wryly amusing’ in the definition above; it summarises sweetly how any business that has had dealings with the labour inspectorate must have felt.
As Steven Joyce said: “It’s disappointing, but around an area that’s fiendishly difficult,”. Bill English pointed out that “This isn’t an issue of lack of competence, it’s the complexity of the Holidays Act. Some people have been probably calculating it wrong since the act came in.”
Welcome to our world.
Bill English suggested that “there may be a widespread issue in the public sector as well as the private sector”. I can assure the Finance Minister that this is indeed widespread across the private sector. We see a large number of companies moving to FlexiTime from other software suppliers and come across a variety of ways in which their handling of holiday pay calculations is not compliant. When converting leave balances there are tell-tale signs we frequently come across.
Many companies are only tracking the 8% holiday pay and not converting this to the four week entitlement. Typically these are companies moving from one of the older payroll applications that have been around since before the 2003 legislative changes.
But the issues are not confined to older software. Last week a company moving from one of the newer payroll providers asked how to convert their alternative leave balance from hours into days – their system had accrued them the number of hours they had worked on public holidays rather than accruing a full day. Similarly some software fails to record the number of days worked, making the standard Average Daily Pay calculation impossible.
There hasn’t been much appetite for change to the Holidays Act. A working party in 2010 failed to make any real improvement to the complexity of the formula. We’re hopeful that this latest high profile incident will prompt change. We were encouraged by the following comments from Michael Woodhouse, the Minister for Workplace Relations and Safety:
“I am watching the debate carefully and am interested in any proposals from the business community on how to simplify the Act.”
“The challenge is actually simplifying it without reducing peoples’ entitlements – I’m not sure we can do that but I’m listening very carefully”
If you’ve been following this blog series you’ll know we’ve suggested a way to greatly simplify the Act while preserving the principles underpinning it. We’ve contacted the Minister with our suggestion and are promoting the idea in other ways.
As the Minister stated, for any change to be viable it’s important that entitlements are maintained. The 12% approach we’ve suggested could work to an employee’s disadvantage when they receive a pay rise. Under existing legislation, if an employee’s pay rate increases, the higher rate will be applied to any leave they take*. Under our approach, the amount they are paid for leave would be proportional to their pay rate when they accrued the leave.
The solution is elegantly simple. If someone receives a 5% pay rise, simply apply the same rate to their outstanding leave dollar value.
Meanwhile a huge amount of taxpayer money is going into into investigating and resolving the issue at MBIE and other government departments. As Paula Bennett said:
“The private sector initially alerted us to the problem in 2014, and we have been working through this since then. We’ve spent the last year looking across Government, and to date Police and MBIE are the only State-sector agencies reporting significant issues, and it took them months to figure out the extent of the problem owing to the complexities of accounting for so many different individual pay rates.”
Hopefully this will inform the Government as to the substantial compliance costs on businesses and change is on it’s way.
We’re not holding our breath.
*It’s not quite as simple as all that (it never is). If the employee is paid out only 8% holiday pay (say in a final pay) then the pay rise will not affect their leave value. As outlined in this blog the difference between an employee crossing their leave anniversary or not can make a substantial difference to the value of their leave, especially if they’ve had a recent pay rise.