Article: Changing payroll and employment law
General / 25 November 2015
By Janet Copeland
On 1 April 2011 significant employment law changes took effect. This article summarises key legislative changes, impending changes and notable case law affecting how payroll is administered.
CHANGES TO EMPLOYMENT LAW IMPACTING PAYROLL AND HR:
Average Daily Pay
Under section 9 of the Holidays Act 2003 (“the Act”), for the purposes of calculating payment for a public holiday, an alternative holiday, sick leave or bereavement leave relevant daily pay (“RDP”) is used to determine the employee’s payment. RDP means the amount an employee would have received had the employee worked on that day.
Since 1 April 2011, where it is not possible or practicable to determine an employee’s RDP, the employer may use an employee’s average daily pay (“ADP”) to determine the amount payable. The ADP formula is set out in section 9A of the Act, where the employee’s gross earnings for the previous 52 calendar weeks are divided by the number of whole or part days the employee earned those gross earnings. The calculation includes days the employee was on paid holiday or leave but excludes any days the employee did not actually work. Where the parties cannot agree on the amount the employee should be paid, a Labour Inspector may calculate the amount for them.
Cashing Up Annual Holidays
Since 1 April 2011 an employee may ask to “cash up” some or all of their fourth week of annual holidays each year. An employee’s request must be in writing and may only occur following the employee’s first anniversary (after twelve months’ continuous employment). An employer must consider any requests within a reasonable time and advise in writing whether or not they agree. No reasons need to be given for declining a request. If the employer agrees to a request to cash up annual holidays, it must be paid to the employee as soon as practicable. Failing to comply with any of the criteria may result in the employer having to pay for holidays twice.
Calculation of the cashed up holidays must be for the agreed portion of the annual holiday entitlement and paid at a rate which is the greater of the employee’s ordinary weekly pay or the employee’s average weekly earnings for the twelve months immediately before the end of the last pay period before the annual holiday.
Transferring Public Holidays
New Zealand celebrates 11 public holidays each year. As a rule we must observe these on the dates they fall and cannot transfer them. Since 1 April 2011 parties could agree to observe a public holiday on a different date if the agreement was recorded in writing and identified the details of which public holiday is to be transferred and the new calendar date (it cannot be the date of another public holiday).
Entitlements to time and a half and an alternative holiday fully transfer to the new calendar date of any transferred public holiday. Failing agreement on when to take any alternative holidays, an employer may choose when an employee may reasonably take alternative holidays.
On 1 April 2012, the adult minimum wage increased from $13.00 to $13.50 per hour. On 26 July 2012 the Minimum Wage Amendment Bill was introduced. This Bill seeks to amend the Minimum Wage Act 1983 and prescribe a minimum rate of not less than $15.00 per hour by April 2013. Although with National already strongly opposing raising the minimum wage it is unlikely that this bill will be successful.
NOTABLE CASE LAW:
Idea Services Ltd v Dickson
Idea Services Ltd v Dickson  ERNZ 116 (EmpC) triggered the enactment of the Sleepover Wages (Settlement) Act 2011. Mr Dickson was employed by Idea Services Limited (“ISL”) for shift work as a community service worker. Several nights a month he performed sleepovers for which he was paid well below minimum wage, at a rate between $3.40 and $4.30 per hour.
The Employment Relations Authority held that sleepovers amounted to work under the Minimum Wage Act and therefore payment must be at least minimum wage for each and every hour worked. On appeal the Employment Court upheld this finding and considered that the constraints on Mr Dickson, such as Mr Dickson’s inability to carry out normal family life or socialise with friends, meant that the sleepovers amounted to work.
As a result of Dickson, employees are recognised as being entitled to not less than the prescribed minimum rate, as per the Minimum Wage Act, for each and every hour worked. Under the Holidays Act 2003, employers are required to keep holiday and leave records, which overlaps with the requirement under the Employment Relations Act 2000, to keep accurate time, wage and leave records, that should record the hours worked including any sleepovers. Failure to do so can result on the employer being liable for a penalty of up to $20,000.00 for each breach. The Dickson case is a timely reminder of the importance to keep accurate records to enable employers to account for the hours their employees work and get paid for.
Foai v Air New Zealand Limited
The recent case of Foai v Air New Zealand Limited  NZEmpC 57 (“Foai”) demonstrates the importance for employers and their payroll staff to accurately pay employees and address any discrepancies with payslips as soon as they arise. In Foai, Air New Zealand (“ANZ”) overpaid Mr Foai a total of $70,428.04 and sought to recover the net amount of $42,435.40. Mr Foai was dismissed on the basis that there had been a fundamental breakdown in the trust and confidence between the parties, with ANZ advancing that one of the reasons was that Mr Foai was not proactive enough in querying his overpayment.
The Employment Relations Authority ruled in ANZ’s favour. Mr Foai challenged the determination in the Employment Court. Mr Foai argued that, while he did not dispute the overpayment, he received the wage payments in good faith and had altered his position in reliance on the validity of the wages he was paid. Mr Foai invoked the equitable defence of change of position and the statutory defence of alteration of position under section 94B of the Judicature Act 1908, to support his claim that ANZ should not be able to recover the overpayment.
Mr Foai had begun working for ANZ on a casual basis and then gained permanent part-time employment with the Company. Mr Foai was promoted to a new position that was described as a ‘temporary Full-time Time and Attendance Administrator’. While Mr Foai knew he would be receiving “average earnings”, described to him as a “top up” of his ordinary hourly rate, the Court was satisfied that Mr Foai did not know what this would have amounted to in dollars and cents. Payslips produced to the Court showed 40 incorrect payments across various pay periods. The Court accepted that Mr Foai did raise queries about his pay with ANZ’s payroll team.
ANZ argued it had a right to restitution because the money had been paid by mistake. The Court rejected this argument as ANZ failed to identify in its evidence any actual mistake which led to the overpayments. The Court considered that Mr Foai had not acted dishonestly or in bad faith, but rather “naively” had rationalised the increased payments by believing they were as a result of his connections with senior management.
The Court accepted that Mr Foai had changed his position in a number of ways, including moving into his own accommodation, getting married, incurring a child support debt and traveling overseas. The Court held that Mr Foai was entitled to rely on ANZ to “get the figures right” and not “misrepresent the amount of pay to which he was entitled.” The Court held that it would be inequitable to require repayment. ANZ appealed the decision to the Court of Appeal, who dismissed ANZ’s claim.
IMPACT ON PAYROLL
It is important for employers and those administering payroll to know their obligations around paying staff to avoid liability for getting it wrong. We recommend ensuring that time, wage and leave records, employment agreements and workplace policies are up-to-date and reflect any law changes. Any requests for leave should be recorded in writing to keep track of them, to ensure staff entitlements are correct and to avoid the risk of to paying holiday entitlements twice for failing to have requests in writing. When in doubt, employers and those administering payroll should seek legal advice to avoid the penalties that can be faced for non-compliance.
This article is produced to provide a brief summary of issues that have developed in the area of employment law. While we take time to ensure the information is correct, details may be omitted which may be directly relevant to a particular reader. The information should not therefore be taken to be sufficient for making decisions. If you have any questions in relation to anything discussed in this article or just a general query, contact the writer or team at Copeland Ashcroft Law who will be happy to assist you.
First published in Pay and You (PAY) – Issue 1, December 2012