Legal Matters

by Simon Lord

last updated 23/11/2019

Payroll problems could cost millions

by Simon Lord

last updated 23/11/2019

19 November 2019 – McDonald’s has agreed to backdate miscalculated holiday pay for 10 years under an agreement with the Labour Inspectorate. It’s just one of many organisations, including the Police, that have been confused by complex legislation

Complex legislation and payroll software is being blamed for a problem that has caused many employers to face massive costs as they make up for incorrectly calculated holiday pay. The organisations caught out by the problem include Bunnings, the Police and District Health Boards, but as always it’s McDonald’s that has been at the forefront of recent media attention.

Although McDonald’s franchisees are the legal employers of restaurant staff, the franchisor worked on their behalf with the Labour Inspectorate to resolve the issue.

Simon Kenny, spokesman for McDonald’s, told Stuff, ‘We have spent tens of thousands of hours working on what is a hugely complex project in order to ensure the approach to making calculations is correct. With the agreement in place, we can now start the process of doing individual calculations. As other companies working on annual leave remediation have done, we will advertise when we have worked through the calculations and will have a website current and former employees can log into.’

By law, arrears of wages (including Holidays Act entitlements) can be sought back for six years, but McDonald’s has extended that to 10 years. Unite Union national director Mike Treen said it was possible every person who worked for McDonald's after November 1, 2009 could be owed money. ‘Unite Union believes that could be as many as 60,000 staff, and millions of dollars will be involved.’

He welcomed the fact that McDonald’s had done more than it had to by backdating the pay to 2009. Treen said, ‘Going back 10 years is in part in recognition of the fact that United alerted McDonald's and other companies it deals with to the problem in February 2015.’

Other organisations facing the same problem have come to different arrangements, with the union expressing its disappointment that Restaurant Brands has limited its liability to the legally-required six year minimum period.

How could this affect so many organisations?

 It’s been estimated that the holiday pay problem could affect 2 million New Zealanders, and while the amounts payable to individual workers may be small – perhaps between $70-1800 per employee – the total back pay owed could be considerable for employers. The Police are reported as already having spent over $30 million correcting underpayments to staff.

The problem stems from amendments made to the Holidays Act as long ago as 2003, and concerns the calculation of holiday pay as it relates to workers who have variable hours or days of work each week – as many do in the service industries.

Smoothpay Payroll managing director Matthew Gardner told RNZ back in 2016 that few payroll developers and suppliers had made the necessary changes to their systems when the Holidays Act was amended in 2003. Unite’s Mike Treen has suggested that 22 payroll providers supplied 95 percent of New Zealand’s employers with their payroll software, ‘And nearly every one of them got it wrong.’

Under review

New Zealand’s Holidays Act has been called horrendously complicated and outdated, with complex rules for calculating leave which are open to misinterpretation and can be difficult to apply correctly. As the number of organisations involved in the MBIE’s investigations demonstrates, employers have found it massively difficult to do the right thing.

In May 2018, the Government established a taskforce to review and provide recommendations to improve the Holidays Act, but payroll companies said they had been shut out of the review. An Interim Report was published in December 2018. The taskforce has now reported back to the Minister for Workplace Relations and Safety, who is considering the recommendations.

The MBIE says a new regime is likely to be a minimum of 12 to 18 months away from being implemented. Meanwhile, employers retain an obligation to remediate workers for historical underpayments of holiday and leave pay, and to pay employees correctly.

The Labour Inspectorate says it continues to support employers to remediate employees for historical underpayments (such as through its practice note on estimating arrears). However, it should be noted that the Inspectorate is also continuing its programme of audits and investigations.


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