Payroll processing can’t wait for managers on extended leave to return for approvals. Before your management team heads off on their break, confirm that all necessary payroll approvals are completed or that alternate arrangements are in place.

This avoids bottlenecks and last-minute delays that could impact the timely distribution of payroll, particularly if approvals are needed from multiple departments. As we approach the holiday season, it’s essential for businesses to ensure payroll processes continue smoothly. Whether your business closes or operates through the holiday period, payroll must remain seamless.

Employees still need, and expect, to be paid on time. However, managing payroll over this period can bring specific challenges. Here are ten key considerations for ensuring a smooth payroll operation during the holidays:

1. Confirm Your Closedown Period

If your business has a closedown period, notifying employees in advance is essential. Legally, employees must be informed at least 14 days before a shutdown, but giving earlier notice helps them plan and manage their time off better.

Informing your team well ahead ensures they’re fully prepared and reduces last-minute disruptions to your payroll planning. It also allows employees to clarify any questions about how leave will be handled during the closedown period.

2. Clarify Annual Leave Requirements

If employees are required to take annual leave during the closedown, communicate this clearly, including what happens if they don’t have enough leave available.

Remember, employees are still entitled to paid Public Holidays that fall within their annual leave (as per Section 40 of the Holidays Act 2003). Encouraging employees to plan their leave carefully now will help them avoid surprises and ensure they’re paid appropriately. Early conversations with employees about these details can help smooth any confusion and set clear expectations.

3. Plan for Pay Dates Over Public Holidays

If a Public Holiday lands on a normal pay date, you may need to adjust payroll processing to ensure funds reach employees on time. Although some banks process transactions on Public Holidays, it’s not always reliable.

Adjusting payroll to process earlier, if needed, ensures employees are paid on the expected date, avoiding complications with automatic payments or direct debits. This extra measure reassures employees, keeps trust intact, and prevents any potential holiday-season stress around late payments.

4. Communicate Any Changes to Pay Dates

If payroll dates need to shift due to holiday timing, communicate this to employees well in advance. Employees rely on their wages to arrive on specific dates, so it’s courteous – and practical – to inform them of any changes as soon as possible.

By being proactive with this communication, you’ll avoid a flood of enquiries from staff seeking clarity during an already busy period for your payroll team.

5. Ensure Payroll Approvals Are Handled Before the Holidays

Payroll processing can’t wait for managers on extended leave to return for approvals. Before your management team heads off on their break, confirm that all necessary payroll approvals are completed or that alternate arrangements are in place.

This avoids bottlenecks and last-minute delays that could impact the timely distribution of payroll, particularly if approvals are needed from multiple departments.

6. Check Bank File Approver Availability

Payroll depends on bank file approvers to release payments, so it’s crucial to confirm they’re available during the scheduled payroll period. If pay dates are altered, approvers need to know about these changes to be available on the new dates.

Ensuring they’re prepared and available to approve files on time prevents delays in payroll processing, so employees receive their wages as expected, even during the holidays.

7. Verify Employee Leave Entries Are Up to Date

If your business has a closedown period, check that leave requests have been entered and approved for all affected employees. If there’s no closedown, confirm that leave entries for those taking holiday leave are accurate and complete.

This prevents any last-minute requests that could lead to errors or missing information in payroll processing, keeping everything on schedule. For businesses with high demand during the holiday season, ensure blackout periods are clearly communicated to employees well in advance.

8. Coordinate Operational Coverage and Leave Schedules

During busy holiday periods, coordinating who’s available to work is critical. If multiple staff want the same time off, consider setting a policy – such as rotating holidays or giving preference to employees who didn’t take leave the previous year.

Clear policies about holiday leave expectations create a fair system for everyone and help ensure you have the staff needed to maintain operations. If you require coverage on key days, set these expectations early to avoid disappointment and ensure smooth operations.

9. Prepare for Increased Payroll Workload

Holiday payroll management often brings an increased workload due to Public Holidays, additional annual leave processing, and potential employee turnover. If the holiday season is also your offboarding period, you may face additional pressure calculating termination payments.

Be sure you have enough resources in place to manage this demand. If your payroll team is stretched, consider bringing in temporary support to manage the extra load, so your team doesn’t feel overwhelmed and processing remains smooth.

10. Plan for Payroll Administrator Leave

If your payroll administrator is taking leave, it’s vital to ensure backup support is ready to step in. Payroll is time-sensitive and can’t be delayed, even over the holiday period.

Ensuring adequate coverage for payroll during this period gives your payroll administrator the well-deserved break they need while keeping payroll operations steady. Consider cross-training additional team members if possible, so they’re prepared to manage any payroll-related issues that might arise.

Last year I went to the Secrets of Stonehenge Revealed exhibition and it has inspired this title – Mysteries of Payroll Revealed, because for many people payroll is as much of a mystery as Stonehenge.

Every week/fortnight/month money appears in personal bank accounts and everyone breathes a sigh of relief – bills can be paid, that new outfit can be bought, that dinner date can go ahead.

The biggest sigh of relief comes from the one who have processed that payroll – the payroll administrator/officer/specialist/manager: Another pay run over, xxx number of employees paid, …until the next pay run when it starts all over again.

Let’s explore the day in the life of a payroll administrator. For the purposes of this exercise I have condensed the process into an 8-hour day. While payroll can take more time than this, the steps are often the same.

Minus 8 hours to payroll commit

Check that timesheets are approved. Out of 10 timesheets, 1 is not approved. Send email to manager. Get an out of office: “I’m currently walking Milford Track and have limited access to emails. If your request is urgent, please email…” Try to track down an alternative approver because the suggested email belongs to someone who does not the authority or access to approve the timesheet.

Dayforce Solution:  Managers can delegate authority to another person in their team who can approve timesheet while they are away.  They can also approve leave requests so that these can be included in the pay run.

Minus 7 hours to payroll commit

All timesheets now approved. Download timesheets/leave approvals for upload to payroll software. Upload fails. Refer to IT Support to assistance. It may surprise most people to know that often the schedules/timesheets are held in one application and payroll in another so there is a download/upload required to process payroll.

Dayforce Solution: Dayforce is an integrated system meaning both time and attendance and payroll processing are held in the same system so therefore file downloads/uploads of timesheet and/or leave data is not required.

Minus 6.5 hours to payroll commit

Issue with upload resolved and timesheet/leave approvals uploaded to payroll software.

Minus 6 hours to payroll commit

Manager now remembers that an adjustment needed to be made to someone’s pay/hours/overtime and meant to tell you last week but has just remembered. Could this be done this pay? Unlock timesheets so that manager can add hours/overtime, wait for approval, lock timesheet again. As upload has already been done and can’t be uploaded again, add the adjustment manually to correspond to the timesheet entry.

Dayforce Solution: If a last-minute adjustment to a timesheet needs to be done, the payroll admin can unlock the timesheet, the manager makes and approves the adjustment and the timesheet can be locked again. The payroll admin then needs to do is recalculate the pay run for the adjustment to be included in payroll.

Minus 5.5 hours to payroll commit

Run payroll in the system. Very often this is not just a matter of pressing a button, but having to go through a series of steps as the payroll system takes the payroll data such as rate of pay, hours worked, overtime, leave etc, draws that into the payroll system, matches up the days/hours worked then works out tax rate and superannuation etc according to the settings in payroll.

Dayforce Solution: What makes Dayforce payroll unique in the payroll workspace is that a pay run can be opened and calculated at any time in the pay period and can be checked for anomalies continuously throughout this period. This means that errors can be fixed ahead of time which allows in-depth analysing, reviewing and correcting pay data prior to pay period end.

Minus 5 hours to payroll commit

Software system throws up a calculation error – something is not matching up in the system. Investigate and attempt to discover what this is and fix the system. Log a ticket with Support.

Dayforce Solution: Dayforce has dedicated payroll support 24/7 that allows system errors to be logged as a Severity 1 Case. This is reserved for genuine emergencies where an issue is impacting payroll commit. This service “follows the sun”, that is, the support team is world-wide so the ticket will be attended to in real time, without waiting for a support team in another region to arrive at work. So applicable to New Zealand which can be as much as a day ahead of other regions.

Minus 4.5 hours to payroll commit

Run payroll reports. In most systems this also includes a report to compare the last pay run to current pay to identify where a particular pay may be over/under. This works well for normal Monday to Friday 8 hours a day, 40 hours a week staff but a little trickier for those with variable hours. Unpaid leave can also skew a regular pay as well as extra hours worked. Find and correct any discrepancies. This can be the most labour-intensive part of payroll.

Dayforce Solution: Dayforce has several audit tools within the payroll module which allows checking according to several parameters, such as gross pay comparison to last gross pay, audit summary whereby individual earnings, deductions, tax etc can be reviewed, as well as summary audits. And, as per the point above, this can be done at any time ahead of the pay period end date to identify discrepancies and errors well ahead of pay date.

Minus 3 hours to payroll commit

Send payroll reports to payroll authoriser to be checked and approved.

Minus 2.5 hours to payroll commit

Approver has query on some employees’ earnings and/or deductions of the payroll report. Investigate and report back.

Dayforce Solution: Within the payroll module, payroll admins can filter on an individual employee and view their actual payslip in a fly-out screen. This fly-out also has additional tabs such as timesheet, time data and GL preview (if configured). This makes investigating and reporting on elements of an employee’s pay fast and an explanation provided timeously so that the authoriser can proceed. 

Minus 2 hours to payroll commit

Payroll approved. Next step is to create the bank file to upload to the bank so that staff can be paid. File downloaded and uploaded to the bank. Bank returns an error message – a bank account number is incorrect. Delete upload and track down the bank account causing the issue, go through employee records, find the bank account on file and compare. Amend bank account and attempt to upload file again. Note that in some software programs, you must reprocess the pay run again for the bank file to download with the new bank account. This is a security feature but takes up time.

Dayforce Solution: The bank file is created as soon as the pay run is committed. If a bank number is incorrect, this can be corrected in employee’s records and the bank file generated again without having to reprocess the pay run.

Minus 1 hours to payroll commit

Send message to bank file approvers to authorise the payment files in the bank. Follow up with approvers. Breathe sign of relief when this is done.

Zero hour – payroll committed

Post Payroll

Send out payslips and print/download payroll reports. Upload payroll journals to accounting system.

Dayforce Solution: While providing a payslip is not a legal requirement in New Zealand, it is best practice to do so. Dayforce produces payslips as an Earnings Statement which are added to an employee’s record and are available within Dayforce for the employee to log in and view. 

Furthermore, these earning statements are stored in one area of the employee’s record so that they access not just the current payslip but also previous payslips. Payroll reports run automatically on payroll commit so are available to download from Archived Reports within the pay run. And if the GL export has been enabled, this is also available either as an archived report or as a file transfer to a SFTP system such as Filezilla.

Plus 1 hour after payroll commit

Employee sends email; “My pay is wrong, you didn’t pay me for…”

Dayforce Solution: While errors in payroll can always occur, especially as payroll personnel tends to be the last to know, as Dayforce is an integrated system the possibility of persistent errors is reduced. The HR record within Dayforce holds all compensation data such as employee’s salary, days and hours worked, entitlement policy, pay policy and payroll policy. 

The payroll elections feature holds regular earnings such as allowances, as well as regular deductions. The Time Away From Work module holds leave information and feeds approved leave directly into the employee timesheet.

All these elements are loaded into the pay run once it is opened and calculated. An amendment made to any of these elements can be calculated and viewed at any time in the pay period to ensure that the pay is correct. Mistakes happen but with all these elements embedded in the one system, there is less chance of a mistake occurring.

And a mistake-free pay run makes for happy employees 😊

End-of-year tax 2024 is knocking on the door. So, equipping yourself with a summary of the changes occurring from 1 April 2024 is essential for ensuring your ducks are in a row and you have peace-of-mind going forward.

These changes apply for the first pay cycle with a pay date that falls on or after April 1. In a nutshell, what this means is you could have a period ending 31 March 2024 with a pay date of 3 April and this will already form part of the 2025 tax year.

 

ACC Earner Levy Threshold

• On the ACC front, the ACC Maximum earnings threshold has increased from $139,384 to $142,283.
• The ACC Earner Levy has increased from 1.53% to 1.60%.
• The maximum ACC Earner Levy payable is $2,276.52 annually.

 

PAYE Rates and Thresholds

Tax thresholds are changing, but not yet. Even though the new government’s policy is to increase the tax thresholds, so employees can expect a reduction in the tax they pay, this won’t kick into effect until June 2024. So, as it stands, there are no changes to tax thresholds or tax codes on 1 April 2024.

 

Student Loan Repayment Rates and Threshold

No major shift in the student loan department. Student Loan threshold values apply from 1 April 2024, with the rate remaining at 12%: 

Frequency	2024 – 2025 Tax Year
Annual threshold	$24,128
Weekly pay period (Threshold divided by 52)	$464
Fortnightly pay period (Threshold divided by 26)	$928
Four-weekly pay period (Threshold divided by 13)	$1,856
Monthly pay period (Threshold divided by 12)	$2,010

 

Minimum Wage

The minimum wage is on the rise, with increases effective 1 April 2024. 

Type of minimum wage	2023 Rate	2024 Rate
Adult	$22.70	$23.15
Starting-Out	$18.16	$18.52
Training	$18.16	$18.52

Keep in Mind…

As the Tax Year End 2024 fast approaches, stay abreast of these important things . . .

• Ensure your software is updated, you have tested any changes and it’s ready to roll for the first pay cycle in the new tax year.
• Take time to reconcile your payroll reports for the year, and survey what has been reported and paid to the IRD.
• Make sure your new processing calendar and holidays have been loaded. Typically, cloud-based software vendors automate this for you but don’t assume and then find yourself on the back foot.
• If you have employees who are on special tax codes, make sure you have their new certificates on hand.
• ESCT rates are recalculated at this time of the year for employees based on the taxable earnings + employer Kiwisaver contributions for the previous year. Double check your payroll system has done this correctly.
• Ensure all employees are being paid the new minimum wage or higher.

If you have any pay or tax related questions as we step into this busy time of year, reach out to our team for advice and assistance.

When Scenario Testing Takes a Backseat: Unveiling the Hidden Risks in Your Software Adventure!

Imagine a scenario (pun intended) where a company has recently implemented a new Payroll and WFM System. However, as the first payroll cycle is approaching and payroll is in its final testing phase, they have discovered some discrepancies – possibly from errors in the system configuration.

There is concern that these issues may lead to incorrect salary calculations, incorrect interpretation of agreement relating to specific payments for example a night shift allowance, and ultimately employee dissatisfaction. 

Solution: Planning and Executing the Scenario Testing Phase

To address the potential issues in the new system, a thorough scenario testing plan is crucial. Here’s a step-by-step solution:

1. Scope / Specification document:
Collaborate with the payroll team to identify potential configuration issues in the new Payroll and WFM System.

Review the document in depth because it sometimes requires additional iterations. Check the system settings, tax tables and other parameters to ensure they align with the company’s policies and legal requirements. The scope / specification document can be described as the blueprint to set the foundation for the new system implementation.

2. Create scenario test cases:
Develop a comprehensive set of test cases covering various aspects of payroll processing which include:

• Wage/salary calculations – checking hours, rates, totals.
• Tax calculations – check tax on different tax codes/local tax compliance.
• Allowances and deductions – paying/deducting as expected.
• Leave calculations – comply with legislation/contract.
• Leave accruals.
• Rosters – check if different rosters are functioning as they should.
• Public holiday payments.
• Reports – ensuring all reports generated are as expected.
• Leave accruals.
• Employee self-service functionality.
• Payroll processing steps from start to end.

Include scenarios for different employee types, such as full-time, part-time, salaried, and hourly workers.

3. Execute test scenarios:
Execute the test cases in a test environment. Is the outcome what is expected?

4. Create an ‘issues’ register:
Document the results to identify any discrepancies between actual and what is expected.

5. Error resolution: 

• Work closely with the software vendor to address and resolve any issues. Are issues due to system configuration or interpretation of employment agreement? Collective agreement? Is more user training required?
• If any system configuration changes are made, do a re-test of the ‘failed’ scenario(s).

6. Data validation: 
Verify the accuracy and completeness of the data imported into the new system, including employee information, tax details, and other relevant data.

• Carry out a mock migration from the legacy system for a subset of employees to test the migration proces
• In addition, manually add a few employees to verify each of the components in the setup 

7. Keeping a record of scenario testing and results:
This is an important step for the client to review if similar issues arise in the future where both the vendor and client have access to the same information. It can also be used to communicate the outcomes of scenario testing to relevant stakeholders. Furthermore, this is often a requirement from internal and external audits.

Implementation of a new system doesn’t have to be a shot in the dark. Companies can ensure a smooth transition to the new system by identifying issues and rectifying them prior to going to the next stage in the implementation cycle.

Scenario testing isn’t just a means to an end when it comes to software efficiency, it’s a must do. Reach out to our team of implementation experts to put your payroll to the test.

In this post I will analyse some of the findings of the case GD (Tauranga) Ltd (Plaintiff) vs Clayton Price, Paul Keown and Stephen Lim-Yock (Defendants), heard by the Employment Court on 13th March 2019.

Please note, this is an opinion piece, providing a logical assessment, based on practical experience in dealing with these matters on a daily basis. We are not lawyers and this post should not be seen as legal advice. Please refer to The Case for details and context

Overview

To provide some perspective and background, GD Tauranga is a building company that sells house and land packages. The three defendants are (at the time of this case) employed as sales consultants. Their remuneration is made up of a base salary equivalent to minimum wage x 40 x 52 and in addition to this they receive commissions for selling house and land packages. The commissions are deemed to have accrued on the day when the deal goes unconditional.

Since 2013, as advised by their external accountants who ran the payroll, GD Tauranga have been paying sales consultants using Average Daily Pay for their FBAPS (other) leave. When they hired an internal accountant, this was questioned and subsequently changed to Relevant Daily Pay.

It should further be noted that employment contracts stated that for Public Holidays and Bereavement Leave they will be paid Relevant Daily Pay but for sick leave states they are “entitled to sick leave in accordance with the Holidays Act 2003”. It does not specifically appear to mention Alternative Holidays.

In a nutshell

This case was initially raised with the ERA but then referred to the Employment Court, because it’s ruling would have ramifications for the wider industry and similar roles in other industries.

The plaintiff:

• Seeks determinations that for the purposes of calculating payments to each of the defendants pursuant to sections 49, 50, 60 and 71 of the Act for each day of Other Leave that is taken by them under the Act
  • The plaintiff is permitted to pay the defendants their RDP as calculated under section 9 of the Act; and
  • That each defendant’s RDP is correctly calculated under s9 of the Act

GD Tauranga are calculating the Relevant Daily Pay for the defendants as their daily base rate and, if a commission payment falls due on that day, pays them the full commission payment.

The Defendants:

• Have pleaded as affirmative defences that, through usage, leave taken was calculated according to ADP as against RDP and accordingly, has become incorporated into the contractual terms
• Alternatively, the defendants raise affirmative defences that the facts as pleaded constitute a waiver or give rise to an equitable estoppel and/or estoppel by convention, given mutual assent to a common assumption as to the relevant facts such that it would be unjust to allow GD Tauranga to unilaterally go back on a mutual assumption.
• In addition to their affirmative defences, the defendants have included a counter-claim requiring payment of losses suffered by way of wage arrears during the period when the plaintiff has made payment for the leave based on RDP rather than ADP

Context of The Act

Now that we have a very high level view of the background and arguments, lets put some context to the Sections of the act that are referred to in the case

Lord Diplock said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios: “… if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.”

In this post I will analyse some of the findings of the case Labour Inspector vs Tourism Holdings Ltd (The Company), court of appeal hearing from 24 September 2020.

Please note, this is an opinion piece, providing a logical assessment, based on practical experience in dealing with these matters on a daily basis. We are not lawyers and this post should not be seen as legal advice. Please refer to The Case for details and context

In a nutshell

This case is to determine whether commissions earned by Driver Guides, should be included in the calculation of Ordinary Weekly Pay, as defined in Section 8 of the Holidays Act 2003.

The Company argues that commissions should not be included, for the following reasons:

• Commissions are not a regular part of the employee’s pay
• Commission payments are not earnt by driver guides until the debrief and reconciliation process has been completed
• When so earnt, the commission paid is either not pay “for an ordinary working week” OR
• is not “regular”, as to be “regular” it must be pay received under the employee’s employment agreement “for an ordinary working week”
• That is, the phrase at s 8(1)(b)(i) and (c)(i), “a regular part of the employee’s pay”, is to be read as meaning “a regular part of the employee’s pay for an ordinary working week”
• If commissions were included, employees may act strategically and time their holidays to maximize their holiday pay

The Labour Inspectorate argues that the commissions should in fact be included, and gives the following reasons:

• The calculation called for under s 8(2) is required as there is no “ordinary working week”
• On that basis the Labour Inspector says it makes no sense, when calculating factor b, to do so as if s 8(1)(c)(i) referred to “payments that are not a regular part of the employee’s pay for an ordinary working week”.
• Rather, the qualifying concept used is simply “regular”, in the context of the phrase “a regular part of the employee’s pay”
• One of those circumstances (where 8(1) cannot be applied) is, as here, where there is no “ordinary working week”
• It would be surprising if a central element of the definition that does not fit, namely that of an “ordinary working week”, was in those circumstances to be reintroduced into the alternative calculation under s 8(2) as regards included and excluded commission.
• The interpretation the Labour Inspector supports is also consistent with the qualifying word “regular” in s 8(1)(c)(i). The dictionaries give us a number of meanings for the word regular. As relevant, the word means both (i) “conforming to a rule or principle; systematic”, or what might be called substantive regularity; and (ii) “acting or done or recurring uniformly or calculably in time or manner; habitual, constant, orderly”, or what might be called temporal regularity.

Context of The Act

Now that we have a very high level view of the arguments, lets put some context to the Sections of the act that are referred to in the case

8 Meaning of Ordinary Weekly Pay

(1) In this Act, unless the context otherwise requires, ordinary weekly pay, for the purposes of calculating annual holiday pay,—
(a) means the amount of pay that the employee receives under his or her employment agreement for an ordinary working week; and
(b) includes—
(i) productivity or incentive-based payments (including commission) if those payments are a regular part of the employee’s pay:
(ii) payments for overtime if those payments are a regular part of the employee’s pay:
(iii) the cash value of any board or lodgings provided by the employer to the employee; but
(c) excludes—
(i) productivity or incentive-based payments that are not a regular part of the employee’s pay:
(ii) payments for overtime that are not a regular part of the employee’s pay:
(iii) any one-off or exceptional payments:
(iv) any discretionary payments that the employer is not bound, under the terms of the employee’s employment agreement, to pay the employee:
(v) any payment of any employer contribution to a superannuation scheme for the benefit of the employee.
(2) If it is not possible to determine an employee’s ordinary weekly pay under subsection
(1), the pay must be calculated in accordance with the following formula:
(a − b) / c
where—
a is the employee’s gross earnings for—
(i) the 4 calendar weeks before the end of the pay period immediately before the calculation is made; or
(ii) if the employee’s normal pay period is longer than 4 weeks, that pay period immediately before the calculation is made
b is the total amount of payments described in subsection (1)(c)(i) to (iii)
c is 4.
(3) However, an employment agreement may specify a special rate of ordinary weekly pay for the purpose of calculating annual holiday pay if the rate is equal to, or greater than, what would otherwise be calculated under subsection (1) or subsection (2).

As outlined in the case, we can readily assume that the Commissions in question for part of the definition of Gross Earnings under Section 14 of The Act (represented here as (a) in the formula under section 8(2). We can also assume that, to calculate Ordinary Weekly Pay for these Drivers, we have to use Section 8(2). The parties have agreed on this.

The key question is whether the Commissions can be deducted from the Gross Earnings to be used for the calculation of OWP, represented by (b) in the formula under section 8(2).

Analysis

If we look at what Section 8 of The Act is trying to achieve, we can deduce that the intent is to come up with a dollar value that represents what an employee would ordinarily earn in one week. “Week” is not defined anywhere in The Act, therefore it must be assumed that a week is defined as a calendar week i.e., 7 days.

The Act allows for two means of calculating this. Section 8(1) is used where it is clear what an employee earns each week, for example salaried staff with no varying income, and section 8(2) is used where it is not possible to determine that value and provides a formula of (Gross Earnings – Irregular Earnings) / 4.

Gross Earnings is fairly easy to determine, and we have already agreed that the commissions form part of this definition and the divisor of 4 is very clear also. The only variable that is therefore left, is whether the commissions should be deducted from Gross Earnings or not.

This is not a simple task. To make this assessment, we refer to the guidelines published by MBIE in 2017. The following quotes are taken verbatim from these guidelines

The MBIE Guidelines on OWP

• “The word ‘regular’ should be read both in its literal sense (eg ‘weekly’) and in the sense of happening more often than not, but must also be read in the context of determining what an employee receives for an ordinary working week. If the employee generally works overtime every week, even if the days are different, the payment should be deemed regular for the purposes of OWP”
• “Anything that is likely to occur fortnightly, or otherwise regularly within a four-week cycle (or each month for monthly pay), should generally be included, even if the amount varies.”
• “These payments should either be apportioned evenly (if they do not relate to specific events that occur within the relevant period, for example, a payment for meeting a performance target) or assigned to the weeks in which they were earned (if they do relate to specific events that occur within the relevant period, for example, sales)”
• “For longer periods, the nature of the payment should be considered. If an incentive payment is paid only occasionally (eg quarterly) but is based on activity that takes place each week (eg a commission on individual sales) it generally should be included. However, if the payment relies on achieving say an annual target, (eg a certain percentage on a customer satisfaction survey), it would be less likely to be relevant for the OWP calculation.”

The MBIE Guidelines on “Money Earned vs Paid”

“Consider a situation in which an employee receives a base salary with commission payments made quarterly. These commission payments relate to weekly sales, and so should be considered as ‘regular’.

Under a ‘money paid’ approach, if the quarterly payment fell within the four-week assessment period, the annual holiday pay calculation could be inflated, though if it fell outside the four-week assessment period, the holiday pay calculation would only be based on the employee’s base pay.

Under a ‘money earned’ approach, only the portion of the commission that arose from sales during the four-week assessment period would be considered for the calculation. A sensible approach in this kind of situation is to take a “money earned” approach, and it is important that this approach is taken in a principled and consistent manner and that the employer is open and transparent with the employee.”

Application

Let us now apply these definitions to the case of the Tourism Holdings Drivers’ commissions.

There is some omission of information from the Case, which would be crucial to the determination of the outcome. That is, a detailed analysis of how and when Drivers are paid their commissions.

• Do the drivers get paid commissions on a regular cycle, i.e. ever X weeks?
• What period of commissions “Earned” do those payments cover?
• Do Drivers actually receive commission payments with each payment cycle, or are there times they may receive nothing?

Using the “Paid” method

If we are to include the commissions in Gross Earnings for OWP on a “Paid” basis, these have to be able to be related to a 4-week maximum period. I.e., commission amounts paid should cover periods no longer than 4 weeks and should be paid at least within every or most 4-week cycles.

If commissions relate to periods longer than 4 weeks, including these in a 4-week calculation would inflate the resulting rate inappropriately. E.g., if we divide 8 weeks of commissions by 4, then we are in essence doubling the value of the commission included. Conversely, if the 4-week period relates to a period that does not contain any commission payments, the OWP rate would exclude commission entirely.

Therefore, commissions relating to longer periods could only be included on the “Earned” basis and would have to be associated to each corresponding week, i.e., the week during which they were earned.

In the case of Tourism Holdings, we have to assume that commissions are not paid on a “regular” cycle, and do not cover the same period length each time, given the nature of the trips that result in the leads, their varying lengths and the time it then takes to carry out the necessary administrative work to calculate the commission and pay the employees.

On that basis, we have to assume that the “Paid” option is not feasible because it cannot be accurately determined which length of time each payment relates to and this length of time can also change from payment to payment and employee to employee

Using the “Earned” method

If we then look at the earned method, this requires the ability to know when exactly each component of a driver’s commission was earned, so that this can be appropriately allocated to the week in which it was earned.

The question then arises: “Did they earn the commission when they submitted the lead, when lead actually converted and it become known how many people were in attendance, when the commissions were calculated or when they were finally paid?”

We have already ruled out the “Paid” option, so let’s assume we have to use the “attendance” option to apportion the commission.

Let’s say on 1 June 2021 a driver submits a lead for 4 people. This lead then converts on 25 June and only 2 people attend. The third party then calculates the value of this commission on the 20th of July 2020 and THL pays the employee for that particular portion of the commission as part of the employee’s commission payment on the 4th of August.

Where is the logic?

So we have assessed we cannot use the “paid option” and for the earned option, the actual value of the commission only became known 4 weeks after it was “earned”.

Now let’s say the employee takes leave between those two dates. How would the commission that was “Earned” on the 25th of June be able to be incorporated in the 4-week Ordinary Weekly Pay calculation under section 8(2), for leave taken any time before the 20th of July when the figure does not even exist by then?

So, although the arguments of the labour inspector are technically sound, how is this meant to be practically implement by THL? Aside from the timing delays and varying lengths covered that make it near on impossible to calculate in time for potential leave transactions, even if this was all done manually, how would a payroll system be able to handle this?

Conclusion

If we took a pragmatic approach to the case of these commissions, is that not the purpose of the 52-week Average Weekly Earnings rate, to capture these and ensure employees are compensated for additional and varying earnings?

Why do we need to complicate the attempt of calculating the OWP 4-week rate by trying to make payments fit into this calculation that actually technically don’t, practically don’t and are from a timing and systematic perspective impossible to accommodate?

In my view, nothing that does not get paid either with every pay or at least within every 4-week cycle should be included in the Ordinary Weekly Pay calculation, that is the whole reason why we have a 52-week rate to compare it to.

If we were to include a quarterly commission payment in OWP, we would need to find some means to appropriately apportion it to 4-week blocks and by the time this happens, any leave that would have taken those blocks into account when calculation the OWP rate, would have long been processed.

Can we just get to a point where legal arguments use logic and business sense when reaching outcomes? As much as some rulings may be correct on a technical basis, such may be impossible to implement and apply, and will likely result in companies remaining non compliant with such rulings, even though they are doing the right thing.

Be practical, be pragmatic, simplify, automate, all while acting in good faith.