Failing to comply with the Holidays Act 2003 (the Act) can be time consuming and costly. Getting it right ensures your employees get the correct leave entitlements, your company is protected from legal and regulatory issues, and it shows you are a responsible employer that values your team.

The earlier you identify any compliance issues, the sooner you can resolve them and – critically – stop the problem compounding.

Our Datapay payroll team helps companies efficiently manage, track and administer leave entitlements and pay for tens of thousands of employees every month. Here are five steps we’ve identified that can help you pinpoint and resolve non-compliance issues.

If you do identify any compliance issues, it is a good idea to seek professional advice and support.

1. Review

The first step is to review existing payments and working arrangements – this is to identify those employees who work irregular hours, receive regular payments over and above their standard pay or have had changes in their working patterns. It is these types of employees where non-compliant calculations are potentially more likely to occur.

If non-compliance with the Act is identified, the remediation of any arrears owing to employees goes back at least six years from the date on which the non-compliance first became known, or should reasonably have been known, to the employer (“the starting point”). Inevitably employers require some time to plan the process of how to complete re-calculations and remediations, but this does not generally affect the starting point.

2. Communicate

Identifying non-compliance triggers an employer’s duty of good faith towards all affected employees, and employers that find themselves in this situation need to be upfront with their employees. Communicate clearly with employee representatives and employees on how entitlements are going to be met, and how balances will be reduced when leave is taken, especially for those employees whose working weeks may vary over time.

3. Consolidate

Consolidate and clean up your payroll where possible. One of our customers had well over 150 allowances but only used 40 of them on a regular basis. Having so many infrequently used payments makes any change management more prone to errors and complications.

4. Corrective actions

Correct your processes going forward to stop problems from getting worse. This includes an assessment of whether your current payroll system is capable of delivering compliant outcomes given the nature of your workforce. Recognise that the findings of this assessment may require you to undertake a payroll replacement project.

You also need to separate out remediation exercises from corrective actions. There is a tendency to try and approach both projects at the same time. While there is some overlap, our recommendation is to address any past non-compliance as a separate remediation exercise while taking immediate corrective action to prevent any problems from getting worse – or from reoccurring in the future.

5. Remediation

Remediation calculations are usually completed to a specific date, but it may take some time until arrear payments have been made and all the changes required for end-to-end compliance have been completed. Employers will also be required to calculate and pay further remediation arrears (sometimes called “wash up” arrears) for the period from the date the remediation calculations were first completed until the point when the end-to-end compliance has been achieved. Due to the compounding nature of the arrears, it’s imperative that you carry out the remediation calculations and the correction of the payroll system as soon as practicable to prevent your overall remediation liability from growing.

If your payroll system is being replaced, we recommend undertaking the remediation exercise within the existing payroll system so you can start using the new payroll system with the values that are compliant.

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