However, a recent global payroll survey paints a very different picture. It found more than 40% of employees had been affected by an error in their pay in the previous 12 months, with 18% experiencing at least three mistakes within that period. 

Accurate payroll is essential for employee well-being, legal compliance and maintaining your company’s reputation. As New Zealand embraces more flexible and variable working arrangements, the complexities of applying the Holidays Act correctly have only grown. 

Payroll issues and their implications

A poorly thought-out payroll process, inaccurate record keeping or below-par systems increase the risk of miscalculation, which can lead to unforeseen costs for small businesses. Some common issues include:

• General miscalculations: Failing to pay the correct hours or neglecting to compensate an employee for a public holiday they are entitled to can result in a complaint to the Employment Relations Authority (ERA). Complaints may trigger a comprehensive investigation into your business, with the ERA reviewing all payroll calculations made under your management. This can lead to substantial costs, including legal fees, penalties and the expense of the investigation itself.
• Incorrect annual leave: A payroll system configured to record total weekly hours and days worked, rather than the hours worked each day, will lack the detailed data required to accurately calculate leave entitlements. For example, annual or sick leave calculations are impacted by employees with variable work schedules. This could cause significant issues if systems or record keeping aren’t complex enough to account correctly for it.
• Incorrect termination pay: An employee’s termination pay is a lump sum payment and needs to be taxed accordingly. Some payroll systems will do this for you and some will not. If you do not take the time and care to ensure this is processed correctly, the employee will be taxed incorrectly, potentially leading to animosity towards the business and at worse, legal action.

Further consequences could include increased scrutiny from Inland Revenue, challenges with employee morale and retention, damage to the business's reputation, and personal grievances or other legal disputes raised against the employer.

What can be done to avoid payroll errors?

Payroll systems aren’t perfect and they are only as good as the information entered into them. This is why it’s risky to rely solely on your payroll system. The phrase “you get what you pay for” also rings true. You can save on costly errors by investing in a system well-suited to your business, comprehensive training in its use and guidance from a payroll professional. 

Although implementing a more comprehensive solution may require an upfront investment, the long-term gains in accuracy and compliance significantly outweigh the initial costs and mitigate any risks. 

Final thoughts

As a business owner, you often wear many hats, but payroll is one area where specialised knowledge is essential for operation. By building a support network of trained staff and expert advisors, you can confidently handle payroll challenges. Surrounding yourself with professionals who specialise in payroll can provide crucial guidance on complex scenarios like applying tax to a one-off bonus – ensuring accuracy and reducing stress with your payroll.

By prioritising payroll accuracy, you not only safeguard your business from potential risks but also build a foundation of trust and loyalty with your team. If you are concerned about any of the above, here are some ways our Baker Tilly Staples Rodway payroll teams can help:

• Payroll review – we can review your payroll data for any red flags and things that might need attention.
• Payroll support – we can be available as needed for those tricky payroll issues that don’t happen very often.
• Payroll processing – we can also do full processing, so you don’t need to worry about it.
• Payroll implementations – if you think your payroll system needs upgrading, we can help you evaluate and migrate to a new system that will best suit your needs.

If you’d like to chat to us about any payroll issues or queries you have, contact your local Baker Tilly Staples Rodway advisor and ask about our payroll support.