20 Aug What is Payroll Compliance?
There’s a common tax joke that goes “For every tax problem there is a solution which is straightforward, uncomplicated… and completely wrong.”
New Zealand certainly seems to have taken the joke to heart, with NZ legislation governing payroll ranking among some of the most complex in the world*. Last week, MBIE released guidelines for assessing how compliant your payroll software is, and those guidelines highlight exactly how complicated NZ payroll legislation can be. (UPDATE, 9 September 2016: These guidelines were released in August 2015, but appear to have been removed a year later).
Some payroll applications claim to be compliant in a way that suggests they’ve passed some sort of official accreditation. The truth? There’s no such thing.
The IRD publish a suite of test cases, but there’s no onus on providers to run these tests through their software (we run them all through FlexiTime, naturally). But the tests don’t cover the more complex tax calculations such as bonus payments and final pays. Furthermore there’s no similar set of test cases for the Holidays Act.
Some would argue that very few payroll systems are truly compliant since the Act only refers to weekly balances for annual holidays. In practice, 72% of NZ payroll systems record annual leave in hours**, and many of the remaining systems use days. In reality there’s no compliance issue with using hours if done accurately. In fact MBIE make the following recommendation:
“In such cases where the hours and days of work are irregular and intermittent employers and employees sometimes agree to accrue time towards annual leave on the basis of 4/52 for every hour worked.”
This is much better suited to recording annual leave balances in hours.
Compliance also varies between systems when it comes to record keeping. The MBIE guidelines have a whole section on recording employee’s work patterns, in particular ‘The record of actual hours worked each day’ and ‘The record of actual days worked and/or paid’. Where an employee’s hours vary from day to day this means keeping timesheets, a feature that makes FlexiTime really stand out from other NZ payroll software providers.
It’s not uncommon for payroll software to only record the total hours for a week, without a record of what was worked on each day. Even some new software solutions from some large NZ companies are unable to record the level of detail required by legislation. Unless you have this information in a separate time and attendance solution, or are keeping boxes of paper timesheets stored away somewhere, you’re not complying with the legislation.
FlexiTime’s timesheets and associated tools for capturing time are a great solution to this regulatory requirement. As well as providing accurate average rate calculations, FlexiTime can use this extra information to automate the handling of public holidays.
The moral of the story? Compliance is positively snooze-worthy, time consuming, and deeply complex – so why not let FlexiTime handle it for you?
* NGA HR Research – Payroll Complexity Index 2013
** Simpson Grierson 2014 survey