A 2021 survey of payroll professionals by Global Upside asked respondents to highlight their most significant payroll challenges. Unsurprisingly, most said compliance was still their top challenge.
Payroll compliance was already a complex area before the COVID-19 pandemic struck. Just mentioning the Holidays Act to a payroll officer in New Zealand will cause them to grow another set of grey hairs. Many companies have discovered — to their detriment — that the Act was written in such a way that leaves it frustratingly open to interpretation and, therefore, potentially costly mistakes.
Those mistakes have already occurred. Between 2012 and 2017, 129 major New Zealand companies were audited by the Labour Inspectorate. A worryingly high 70% did not comply with at least one aspect of the Holidays Act.
Even Crown entities have compliance issues
This non-compliance has even affected Crown organisations. In 2018, New Zealand Police was forced to make Holidays Act non-compliance remediation payments of about $39 million. And in 2021, District Health Boards (DHBs) discovered they had been underpaying more than 200,000 staff for years and needed to make remediation payments of $1.15 billion.
According to the Auditor-General’s annual review of the Ministry of Health, DHBs had been unknowingly accumulating liabilities since 2010 because their payroll systems failed to correctly calculate leave in accordance with the Act.
Since its introduction in 2003, government and industry bodies have tried many times to simplify the understanding of how the Holidays Act works so companies and employers can be more confident that they comply.
For example, the Ministry of Business, Innovation and Employment wrote a document on the Holidays Act 2003, which is available online. The document explains the key provisions of the Act and offers useful examples of how it should be applied.
Payroll compliance is becoming more complex
As many companies learn to adapt to local regulation updates like the Holidays Act, they can’t seem to escape the external economic shocks that force firms to radically change their payroll processes, time and again.
For instance, after COVID-19, payroll compliance problems have only gotten more complex. The pandemic caused many companies to restructure their operations and set up temporary payrolls (the only way to pay their staff on time during the early months of the pandemic). In many cases, these temporary payrolls were issued on previous months’ actuals rather than up-to-date actuals.
While this method ensured staff were paid while working from home, all payments eventually needed to be corrected based on accurate data to reflect a firm’s systems and according to the local or national tax authorities.
Such retrospective actions created ample room for miscalculations, mistakes and non-compliance — some of which will almost certainly lead to penalties for companies. In other words, it seems cleaning up the mess of COVID-19 has only just begun.
Remote working is the new normal
On top of this, many employees do not expect to return to the status-quo in their working arrangements. After a taste of remote working, staff from all kinds of industries and in different professions are keen to continue with their flexibility and autonomy even once the pandemic finally ends.
According to the EY 2021 Global Payroll Survey, companies expect 29% of their employees will continue working remotely, while 48% will be happy with some sort of hybrid model. Interestingly, in the EY 2021 Work Reimagined Employee Survey, 54% of employees said they are prepared to resign if not given the flexibility they desire.
Given these stats, it is worrying to see that 37% of organisations said they do not have a plan of action to address flexible-work employees working in a different jurisdiction, according to the EY 2021 Global Payroll Survey.
The pandemic also highlighted the vast quantity of paper-based payroll systems still being used for compliance today.
Accelerated adoption of payroll software
Early in the COVID-19 pandemic, this became a problem for some companies when, especially under quarantine or lockdown, payroll officers realised they wouldn’t have access to their paper files. The use of physical files and forms, signing and distribution, mass printing, and the use of on-premises payroll software was not possible from home, and something needed to change quickly.
The answer has been for companies to accelerate the adoption of payroll software that digitises the entire process. Companies that had already switched to predominantly digital payroll processes were less affected by pandemic disruptions. Others used it as an opportunity to update their systems to be more future-ready and to allow for business continuity.
In some ways, the future of digital payroll compliance was already here before the pandemic began, at least in terms of new regulations like digital privacy and data protection.
New Zealand’s Privacy Act
In 2016, the European Union passed a bill called the General Data Protection Regulation (GDPR) requiring all businesses dealing with employee data about or belonging to E.U. citizens to adopt strict access controls to that data, including payroll data.
Updates to New Zealand’s Privacy Act copied some important aspects of the GDPR. For example, transferring personal information to agencies outside New Zealand is prohibited in many cases, and both regulations apply to agencies and controllers based outside the region. However, compared with the New Zealand Privacy Act, the GDPR imposes far more extensive obligations on businesses.
Despite all this regulatory action and corporate alignment, there remain profound payroll compliance differences between countries. Companies with employees in a dozen locations will deal with a dozen state and local rules relating to taxes, benefits and deductions, and security and data protection laws. Keeping up with every tweak and amendment relevant to your business can become a full-time job for payroll officers.
Leave it to an experienced payroll provider
For many businesses, the solution to payroll compliance and staying ahead of economic shocks like COVID-19 is partnering with an experienced payroll provider. They can offer access to standardised payroll processes and a network of local specialists.
By connecting with a high-quality payroll provider, your company can enjoy the security of a robust payroll system and be confident that their processes are compliant.
For over thirty years, Affinity has been a trusted partner for mid-market and enterprise businesses in Australia and New Zealand, empowering them to transform their payroll operations. With a focus on turning payroll from a cost into an asset, we have established ourselves as industry leaders in delivering innovative cloud-based payroll software and exceptional payroll services.