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Why having payroll software is not enough to keep you compliant

Payroll Software

It’s common knowledge that the Holidays Act is not workable for many businesses. 

You may be aware that the government has formed a Holidays Act Taskforce to improve the Holidays Act by providing a clear and transparent set of rules for providing entitlements to, and payments for, holidays and leave.  

This review finally acknowledges what many in the payroll world have known and struggled with for some time: that the Act’s lack of clarity and certainty makes it difficult to apply in its current form.

However, only time will tell whether the work the task force undertakes helps address the high degree of ambiguity that has made the Holidays Act so difficult to understand and implement for employers.  

With all this talk about ambiguity and the need to have clear and transparent rules, you might wonder how payroll software companies tout lines like “faff free payroll”, “seriously compliant”, and “we make it simple, clear and compliant”. You have to wonder, what do they know that most employers and payroll administrators don’t? 

The truth is, if it sounds too good to be true, then it normally is.

The problem with payroll software

To build payroll software, you first need to interpret the legislation, which is ambiguous even for payroll specialists.

You then need to take into consideration all the different employment situations and configure calculations that will work across all these. 

Finally, you need to consider how users will apply different settings, as these need to be fluid for different employment situations.  

My mind boggles at the complexity of this, and hats off to those payroll software companies. 

What it does highlight is that these systems are built with an overview idea of what an employment situation may look like. The results are based on the settings and data input, and if either of these is incorrect, this is where problems can arise.

Common mistakes businesses make when using payroll software

A mistake I see many businesses make (even those with the more expensive software with all the bells and whistles) is that they don’t really understand how their payroll software works or how it needs to be configured to suit their employment situation.

For example, in some payroll software, you have the option to use the four-week average when calculating an annual leave payment, which is great if you have employees whose weekly pay varies.

However, I sometimes see businesses apply this setting for employees who have regular work patterns. While this will work if the employee is paid the same amount each period, it may result in an overpayment or, worse, non-compliance if the employee has received any additional payments in the last 4 weeks (for example,  productivity or incentive-based payments, overtime, bonus payments, etc.).

How to use payroll software correctly

To avoid these problems, it’s essential you understand your employees’ employment agreement and the Holidays Act so you know what things you need to consider when configuring your payroll software.

It’s also important to remember that while payroll software is a tool that can help you meet your payroll obligations, there will always be cases where manual intervention and adjustments are required (because New Zealand payroll legislation is complex, and I haven’t yet come across a software system that automatically accounts for every situation!).

By understanding how your payroll software works and the situations where adjustments might be needed (for example, your employees’ entitlement to public holidays after their last day of employment), you can ensure everything is set up correctly to meet your compliance obligations.

Want to learn more about how to make the most of your payroll software?

Read my Blog 5 Payroll Mistakes! – 5 payroll mistakes you probably don’t even know you’re making (and what to do instead).