Common payroll mistakes to avoid

When you’re managing payroll, you can’t really afford to get it wrong. Best case scenario, the mistake costs you time and money. Worst case, it can result in legal issues as well. Payroll mistakes can and do happen, so here’s some mistakes to watch out for.

1. Bonuses & Annual Leave

This can be a tricky one to get right. The Holidays Act 2003, states that holiday pay is calculated based on an employees’ gross earnings – INCLUDING any productivity or incentive-based payments. An incentive-based bonus for achieving a particular outcome, should be included as part of the gross earnings. However, one-off no-obligation bonuses, not tied to productivity or incentive, are not.

2. Casual Contracts

Some businesses leave staff on casual contracts when they’re no longer a casual worker. Although there’s no legal definition for a casual worker, Employment NZ, says the term applies to an employee who “has no guaranteed work hours, no regular pattern of work, and no ongoing expectation of employment.” This means there’s no obligation for you to offer work, and there’s no obligation for them to accept work. Annual holidays and leave are managed differently for casual employees – usually they are paid an additional 8% on top of their wages/salary.

This is all well and good as long as that employee is truly a casual employee. As soon as an employee starts a regular work pattern, then he/she becomes a permanent part-timer and is entitled to annual holidays.

3. Making payroll deductions

Deducting money from an employee’s wages is protected by law. Under The Wages Protection Act 1983, you can only make deductions from an employee’s pay if it’s required by law, such as tax, student loan repayments, or child support. You can also make deductions if the employee explicitly agrees (and not under duress). If you make a payroll mistake and overpay an employee, you can’t just deduct it from the next pay. You need to consult your employee before making any specific deductions and he/she can withdraw his/her consent for you to do so, at any time. So before making any payroll deductions that aren’t for tax, student loan, or child support, make sure to get consent (ideally written) from your employee.

4. Final Pay Calculations

Final pay calculations can be a bit of a headache, especially when employees are entitled to be paid for public holidays that occur after their termination date. It applies to employees who’ve worked for you for at least 12 months and is a result of unused annual holiday entitlement.

To work out if this rule applies, imagine that your employee is taking his/her annual leave from the day after employment with you has ended. If there is a public holiday within that period (on a day when the employee would normally have worked), then you must pay for that public holiday, as you usually would.

You must also extend the period the annual holidays covers by one day for each public holiday.

5. Using Integrated Systems

Payroll mistakes are commonly made because employers get confused about employment law and employee entitlements. An integrated payroll system can help avoid payroll mistakes, especially if you’re using multiple systems to record HR info, timesheets, and payroll. Integrating a payroll system with other software can make payroll a much simpler process!