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Auckland Council begins rectifying Holidays Act errors

Council begins contacting employees

Published: 16 May 2018

Auckland Council has started contacting employees who were underpaid as a result of an incorrect application of the Holidays Act.

The council will contact about 4500 current council employees to advise them of the issue and explain how pay will be rectified. Former employees will be contacted later this year.

It follows a number of organisations across New Zealand incorrectly implementing the complex Holidays Act legislation, resulting in large-scale payment errors across several types of pay (annual leave, sick leave, bereavement leave, public holidays, and alternative leave).

Auckland Council Director People & Performance, Patricia Reade, says the council is doing all it can to ensure the issue is rectified.

“We are certainly not alone in discovering this issue with the Holidays Act. For example, NZ Police identified a $39 million underpayment affecting approximately 15,000 employees."

“For Auckland Council, the issues are complex and affect approximately 17,500 current and past employees who were employed by the council from 2010, including a wide range and large number of contracts.

“Working out exactly what we owed and who we owed it to was a huge and complex undertaking.

“However, we are committed to ensuring we do right by current and previous employees. The next step in the process will be to attempt to contact former employees who are owed backdated payments.”

Scope of Work

In 2016, following an audit of compliance, Ernst & Young (EY) was contracted to perform a comprehensive review of the council’s payroll system to:

  • identify where underpayments had occurred (for both current and past employees). This calculation was performed at an employee level, encompassed present and past employees, and goes back to the date of amalgamating the various legacy councils in 2010.
  • quantify the amount of underpayments as a result of non-compliance.
  • assist the council in determining what changes are needed to ensure our payroll system and associated processes are correctly configured and/or amended to avoid these non-compliances moving forward.

This work included Auckland Council, Auckland Tourism, Events and Economic Development, Regional Facilities Auckland; Panuku Development Auckland and Auckland Council Investments Limited.

EY estimated liability of $18 million, to be included in the council’s 2016/17 Annual Report. This included detailed sampling and recalculating a wide range of employee payroll payments and applying this to the employee categories, determined by identifying employee working arrangements across the full population. The liability and process were audited by Audit NZ during their audit of the 2017 Annual Report.

Simpson Grierson was also contracted to perform ongoing independent legal reviews of the methodology and assumptions underlying the calculations done by EY.

EY and Simpson Grierson charged $2.1 million and $35,540 respectively.

Huge scale 

Joanne Ogg, EY partner, says that the complexity of the work was unprecedented.

“EY are working together with a number of organisations to help them remediate their non-compliance situations," she says.

“In Auckland Council’s case, a number of factors made the remediation project different and far more complex than most organisations.

“This included the requirement to complete detailed work to understand the working arrangements, and payroll payments of approximately 17,500 current and past employees going back to the time of amalgamation in 2010.

“In order to gather that information, months of interviews and data analysis was required to identify and categorise employee working arrangements so we could apply the requirements of the Holidays Act as accurately as possible,” Ms Ogg says.

“This was particularly relevant because of the relatively high proportion of staff working non-standard hours, for example libraries, leisure, and parks staff, and the wide range of working arrangements in place.

“Further unique complexities arose because of the council’s amalgamation and subsequent structural, system and process changes.  A number of methodologies have been developed to account for these complexities.”  

Next Steps

Current employees affected will be paid during the week beginning 21 May.

Work is underway to reconfigure the payroll system to address the compliance issues. We estimate this will be completed late 2018.

At this point, the council will make a final payment to current employees and begin contacting former employees who it believes have been impacted by this issue.