Hon Chris Hipkins Minister of State Services · This is a suite of documents released in part by the Hon Chris Hipkins, Minister of State ... on their ability to develop a compliant

© Crown Copyright, Creative Commons Attribution 4.0 International (CC BY 4.0)

Hon Chris Hipkins

Minister of State Services Improving Government Payroll Systems

Date of Issue: 17 October 2019

Date:

Title:

Author:

17 October 2019

Improving Government Payroll Systems

GOV-19-MIN-0041

GOV-19-SUB-0041

CAB-19-MIN-0492

State Services Commission

This is a suite of documents released in part by the Hon Chris Hipkins, Minister of State Services that has informed the Government’s proactive release of information policy.

Some parts of this information release would not be appropriate to release and, if requested, would be withheld under the Official Information Act 1982 (the Act). Where this is the case, the relevant section of the Act that would apply has been identified.

1

In Confidence

Office of the Minister of the State Services

Chair, Cabinet Government Administration and Expenditure Review Committee

IMPROVING GOVERNMENT PAYROLL SYSTEMS

Proposal

1. This paper proposes that the Government Chief Digital Officer, in conjunction with

the State Services Commission and the Ministry of Business, Innovation and

Employment, collaborate in a work programme to improve the efficacy of processes

to address the government payroll issues, including those generated by the

provisions of the Holidays Act, and jointly report back to the Cabinet Government

Administration and Expenditure Review Committee by November 2019 on progress

and any further steps that may be needed.

Executive Summary

2. In May 2018, the Cabinet Economic Development Committee (DEV) considered evidence of non-compliance with the Holidays Act 2003, caused by both poor implementation of the Act and issues with the Act itself, and decided to establish a Holidays Act Taskforce to review the design of the Act and any other issues relating to its operation. DEV also directed the State Services Commission to catalogue existing and proposed projects in the State sector related to payroll improvements and report back to Cabinet with a list of those projects including indicative costs as soon as practicable.

3. In August 2018, the Holidays Act Taskforce published an issues paper that identified the components of the problem and how these are manifest, making it clear that this is a multi-faceted problem with no single solution.

4. The problems have been resistant to solution through legislative change in the past and a more fundamental change to the Act is needed. While guidance to support agencies’ adherence to the provisions of the Holidays Act was issued during 2017, non-compliance continues to exist, resulting in costly remediation in some cases.

5. Legislative change, through reform of the State Sector Act and review of the Holidays Act, is likely more than two years away. While these changes may reduce complexity in time, other factors as well as agencies’ need to upgrade or replace payroll systems means that Government needs assurance now that expenditure is warranted, risks are managed, and it results in fit-for-purpose outcomes.

6. I propose taking steps to ameliorate the impact of payroll problems by establishing a system wide work programme to take an oversight and coordination role. This programme will ensure that agencies have more effective and consistent payroll processes through alignment with a common process model that will be kept current with good practice and legislative requirements. It will also deliver on-going cost

4rdol5z8ux 2019-10-01 13:18:37

2

savings to government by removing the need for agencies to: design bespoke payroll processes, manage costly and lengthy procurement processes, and invest in complex configurations of payroll systems.

7. The success of the programme will be dependent on three parties working jointly:

7.1 The Government Chief Digital Officer (GCDO) will lead the programme, engage with suppliers of IT solutions, provide assurance and investment advice to agencies, and will report to Ministers on progress.

7.2 The Ministry of Business, Innovation and Employment is responsible for: 7.2.1 Providing policy advice on the Holidays Act, including leading the

Holidays Act review

7.2.2 Enforcing the provisions of the Holidays Act (through the Labour Inspectorate) and assisting employers – including government agencies – to achieve compliance by issuing interpretation ad guidance material

7.3 The State Services Commission has oversight of employment relations and also maintains an overview of agency pathways towards compliance with the Holidays Act and will report to Ministers on progress.

8 Budget 2019 delivered additional funding of $2.000m over 2019/20 and 2020/21 for the GCDO to deliver this work programme, which will be supported by SSC and MBIE through their existing baseline funding.

Background

9 In May 2018, DEV considered evidence of non-compliance with the Holidays Act 2003, caused by both poor implementation of the Act and issues with the Act itself. The Committee decided to establish a tripartite taskforce to review the design of the Holidays Act and any other issues relating to its operation [DEV-18-MIN-0098].

10 In August 2018, the Holidays Act Taskforce published an issues paper that identified the components of the problem and how these are manifest. The paper makes it clear that this is a multi-faceted problem with no single solution.

11 A leading reason for non-compliance is that, in many cases, agencies’ ability to comply with the Holidays Act is affected by how readily payroll systems may be configured to cope with the complexity of calculations required. Another is the ‘set and forget’ approach taken by many employers, which leads to payroll systems and practice that do not keep pace with changes in the nature of work and changes in terms and conditions of employees. Employers (in both the public and private sectors) are currently considering new payroll administration approaches and systems or making substantive changes to their current ones.

12 The extent and cost of payroll projects either underway or proposed is unclear. Consequently, DEV directed the State Services Commission, together with other agencies as appropriate, to catalogue existing and proposed projects in the State sector and report back to Cabinet with a list of those projects, including indicative

4rdol5z8ux 2019-10-01 13:18:37

3

costs, as soon as practicable. This paper addresses that direction, and I am proposing a new work programme to provide oversight of payroll projects.

Analysis - Identifying solutions

13 It is likely to be a minimum of two years before new legislation is passed, and this will be followed by a suitable implementation period for payroll system solutions to be updated or replaced. In the meantime, some State sector employers are facing high remediation costs as well as unquantified costs to make their payroll compliant. Interim solutions need to be found that are consistent with possible future changes to the Holidays Act and with being a good employer.

14 At the core of the difficulty in developing compliant payroll is the increasing complexity of terms and conditions of work. Some of this complexity can be sheeted back to the provisions of the Holidays Act, but it is also driven by moves towards a future workforce that has greater work-life balance and caters to increasing diversity of workers, and by shifts in how frontline work in the state sector is configured. There is increasing demand for agile workplaces to cope with employees who need to arrange work around childcare, disability, transition to retirement and the like. There may be an opportunity through proposed changes to the State Sector Act to standardise some conditions to allow greater flexibility of the workforce to move between agencies, but this is also in the longer term, and won’t necessarily make it easier to design compliant payroll systems.

15 Agencies have identified three system-level solutions:

15.1 Potential changes to the legislation so that it continues to deliver the benefits to employees but is easier to administer, which is the focus of the Holidays Act Taskforce – its work is outlined in more detail in Annex 3.

15.2 Improve State sector practice in applying the provisions of the current Act. MBIE holds primary responsibility for enforcement of the current Act and provision of guidance to employers on achieving compliance.

15.3 Take a system wide co-ordinated work programme approach to provide oversight for payroll projects. This paper proposes a new work programme to deliver this solution.

A system wide co-ordinated work programme approach to provide oversight for payroll projects

16 Information collected by the State Services Commission (SSC) suggests that a number of payroll systems are unable to be easily configured to be compliant with the Holidays Act, or that manual intervention to ensure the system keeps pace with changes is inconsistent. This is because the Holidays Act is complex, with several different elements involved in achieving compliance, including variation in policies and processes, and wording in individual employment agreements.

17 Agencies face differing levels of complexity in their work environment which impact on their ability to develop a compliant payroll system. For example, it is more difficult to have an easily configurable solution where hours are variable or unpredictable

4rdol5z8ux 2019-10-01 13:18:37

4

from week to week, and when remuneration arrangements are complex (for example, when they include bonuses, commissions, or other incentive payments).

18 Employers need to consider how best to meet their obligations under the Act in the context that the legislation is likely to change in two to three years’ time. Some employers may find that managing the issues with their payroll with manual processes may be the most effective approach, but for others, implementing a new solution now may be a better option (although even these will still require some manual intervention).

19 While in some cases the complex calculations required to comply with the Holidays Act is a key driver to change agencies’ payroll systems, other improvements to dated legacy systems and different operating approaches are often equally important drivers. Some agencies (for example, the Inland Revenue Department) are upgrading their payroll system as part of a larger system upgrade which includes changes to how they administer these and other of their enterprise systems.

20 Some agencies with the biggest compliance issues have addressed these through upgrading or replacing their payroll systems or are in the process of doing so. New Zealand Police, the government agency with the largest remediation bill to date (over $39 million), introduced a new system in April last year. The Ministry for Business, Innovation and Employment is also facing a large liability

and has recently received approval for the project and implementation is underway, which includes a payroll system.

21 Many other agencies have taken some action to upgrade their payroll systems and are now at different stages of addressing the problem. Some agencies are not currently taking any action, but this does not necessarily mean they don’t have payroll issues that need to be addressed.

22 Replacing or upgrading payroll systems is an expensive process and not without risk. There have been high profile failures of new payroll systems in the public sector in recent years, the most memorable being Novopay, which suffered large cost over-runs and failed to deliver accurate pay for hundreds of teachers over many months. There is also a risk that upgrades or replacement of payroll systems to ensure compliance with the provisions of the current Holidays Act may be made redundant, at least in part, once new legislation is enacted.

23 Payroll providers across New Zealand have been consulted on the issues paper as part of the review of the Holidays Act. Although it is not yet clear what shape any future system would take, awareness of the review and the expectation of changes arising from it should reduce the risk of agencies investing in payroll systems now that are unable to adapt to any future system that arises from the Taskforce’s recommendations.

24 It is also important to note that a significant proportion of the costs associated with payroll systems will relate to general maintenance and upgrading that would arise irrespective of any Holidays Act issues.

25 A catalogue of payroll related projects in the State sector is provided in Annex 1. The data is incomplete, particularly cost data, as projects are at an early stage and

4rdol5z8ux 2019-10-01 13:18:37

9(2)(b)(ii) prejudice 9(2)(b)(ii) prejudice commercial position

5

costs are still being quantified; and many agencies are yet to address payroll problems, so the costs of remediation are unknown. Totalling the costs provided in Annex 1 could therefore significantly underestimate the cost of updating payroll systems to cope with the demands of the Holidays Act.

26 Agencies are in very different situations regarding compliance with the provisions of the Holidays Act. Their solutions may be the best response to their situation, but we cannot be confident that the risks are adequately recognised and mitigated, the costs are minimised, and decisions are consistent with best practice. Opportunities for inter-operability and system learning are almost certainly being missed.

27 Achieving the best employment outcomes at the lowest cost relies on a coordinated response. This may best be achieved by a system wide coordinated work programme, which would allow sharing of approaches across agency projects and coordinate agency responses to changes arising from the revised Holidays Act.

System leaders have been established to address system issues

28 New Zealand’s public management system is highly devolved, with individual agencies responsible for operational improvements. While this has resulted in diverse and often innovative approaches to problems, it has come at a cost. An individual agency approach to procurement can result in high cost bespoke solutions with limited inter-operability, adherence to common system settings and unrealised opportunities for economies of scale. It also means that what is learnt from an effective solution for one agency is not necessarily applied more widely.

29 System leaders were established in 2012 to lead system work and support the development of system solutions for issues that impacted on multiple agencies. The Head of State Services was appointed to lead the state sector system, appoint other system leaders and coordinate system work. He appointed functional leaders to bring a system lens to government ICT, procurement and office accommodation. They have been successful in reducing cost, improving capability and increasing the agility of our public management system.

30 Our system leaders are addressing the current government payroll system issues through their existing system roles. The relevant functional leaders are the Government Chief Digital Officer (GCDO), who is the chief executive of the Department of Internal Affairs; and the Procurement Functional Lead, New Zealand Government Procurement (NZGP), who is the chief executive of the Ministry of Business, Innovation and Employment. They each operate a range of functions to support a coordinated and consistent approach to optimise investment, improve service provision, and facilitate transitional commercial arrangements to help agencies manage the risks associated with payroll procurement.

31 Functional leaders work through influence. They provide advice and work with agencies to increase their capability in selected system functions. They can encourage but not demand compliance with standards or processes. They work with the diversity that occurs across the system rather than introducing and mandating single system solutions (such as a single payroll system).

32 The GCDO supports effective solutions through:

4rdol5z8ux 2019-10-01 13:18:37

6

32.1 Investment: setting strategy, direction and standards for government ICT/digital enabled investments through review of significant business cases (usually following the Better Business Case model)

32.2 Market engagement: working with the public sector and system leadership to understand the demand for system wide capabilities and expose that demand provide to the ICT market

32.3 System-wide assurance: providing coordinated oversight of system-wide ICT assurance through reporting a system-wide view of the status of information management, technology infrastructure, and technology-enabled business processes and services across government; identifying areas for intervention; supporting agencies to improve their ICT assurance processes; and coordinating, developing and mandating common ICT assurance and information management standards.

33 New Zealand Government Procurement (NZGP) works to build procurement and commercial capability across the public sector, while also achieving economies of scale by enabling the purchase of common, standardised goods and services through All-of-Government (AoG) contracts.

34 In relation to complex procurement projects, such as the purchase of payroll systems, NZGP supports agencies by:

34.1 Reviewing procurement business cases for all projects with a procurement spend of greater than $5 million to provide commercial advice and sense-check the procurement approach.

34.2 Employing a deployable pool of commercial experts to provide agencies that request support with high quality, sound commercial advice.

34.3 Instigating a capability building and reporting initiative (the Significant Service Contracts Framework) to encourage senior leaders to gain visibility of their agencies’ most high profile and high-risk supplier relationships.

Stepping up the level of support to address system payroll issues

35 While actions taken by system leaders will address the payroll issues arising from the provisions of the Holidays Act to some extent, agencies facing the biggest issues will need more individual support to change their payroll systems. Implementation of payroll software by agencies can be a significant cost (often more than the cost of procuring the software) and this is where agency configuration and implementation of regulatory settings occurs. A system view on standardisation of configuration settings and requirements would reduce the potential for bespoke payroll systems being implemented and support future proofing in anticipation of changes to the Act.

36 I therefore propose an extension of the GCDO role to work with individual agencies to upgrade their payroll systems. Phases involved in this are:

36.1 Validate with agencies and providers of payroll systems and services the common process model for payroll developed by Inland Revenue, now being used by GCDO as a model for the State sector.

4rdol5z8ux 2019-10-01 13:18:37

7

36.2 Coordinate an approach to the market on behalf of government to ensure the alignment of payroll software and services against the common process model, potentially making this available in the newly-developed digital procurement platform

36.3 Develop guidance for agencies to undertake “secondary” procurements for their individual selection of payroll software and services.

37 Once a group of suitably qualified suppliers is established in the market through this process, each agency would then engage with them to select a preferred partner and engage in a transition project to address their payroll needs. These projects will be quite specific to each agency given the nature of the Holidays Act interpretation and varying employee terms & conditions.

38 Developing options for standard system configuration settings would draw on input from MBIE’s guidance on administration of the Holiday’s Act and employment terms and conditions within the public sector.

39 I also propose that the GCDO is appointed to lead a system wide work programme supported by the SSC, NZGP and MBIE as policy owner of the Holiday’s Act (both as regulator and in supporting compliance with the Act), to provide oversight to address the issues arising from the provisions of the Holidays Act, working with agencies as they carry out their payroll projects in a more systematic way.1

40 This programme of work will ensure that agencies have more effective and consistent payroll processes through alignment with a common process model that will be kept current with good practice and legislative requirements. It will also deliver on-going cost savings to government by removing the need for agencies to design bespoke payroll processes, manage costly and lengthy procurement processes, and invest in complex configurations of payroll systems.

41 The scope of the programme includes all Public and non-Public service departments and selected Crown entities2. GCDO, SSC and MBIE would jointly report back to the Cabinet Government Administration and Expenditure Review Committee by November 2019 on progress and any further steps that may be needed.

42 The actions in the work programme (outlined in more detail in Annex 2) would:

42.1 Embed guidance for meeting the provisions of the current Holidays Act such as seminars and workshops, discussion through the government HR network, and identifying champions and centres of excellence;

42.2 Optimise investment for system software upgrade/replacement (value for money on each agency’s service procurement) by considering the various

1 SSC would maintain an overview of agency progress towards compliance with the Act. MBIE would remain responsible for the interpretation of the Act and ensuring that guidance through then programme is aligned with emerging proposals for legislative change proposed by the Holidays Act Taskforce. 2 Accident Compensation Corporation, Earthquake Commission, Housing New Zealand Corporation, New Zealand Transport Agency, New Zealand Trade and Enterprise, New Zealand Qualifications Authority, Tertiary Education Commission, and District Health Boards)

4rdol5z8ux 2019-10-01 13:18:37

8

individual agency investments, in the context of a system wide investment profile for payroll;

42.3 Engage with the ICT supply market to enable it to respond to the agreed set of system requirements/outcomes, to create an acceptable group of suppliers who can provide payroll services;

42.4 Support agencies to improve their ICT Project and operational assurance processes; and

42.5 Develop a medium-term system work plan or strategy (including transitional arrangements) for agencies to implement or improve payroll systems that are compliant with the Holidays Act 2003, and sufficiently agile to adapt to future changes to the Act.

43 The GCDO plans to use money agreed through Budget 2019 [CAB-19-MIN-0174.21 refers] to undertake the proposed level of engagement with the market and support change management with individual agencies, with Cabinet agreement to the work programme.

44 The programme will maintain a register (like the register in Annex 1) to provide Ministers with ongoing information on how agencies are addressing payroll issues arising from the Holidays Act. Progress will be reported to responsible Ministers every six months.

45 For some agencies, such as MBIE, finding a solution to their payroll issues is urgent and work is well progressed. I do not propose to stop all existing proposals to improve payroll systems until the system work programme is established. In the meantime, the functional leaders will work with agencies to find suitable payroll system solutions. GCDO will provide Responsible Ministers with advice relating to whether the costs and system requirements for agencies’ payroll system solutions are being considered with the wider system in mind.

Consultation

46 The Department of Internal Affairs, the Ministry of Business, Innovation and Employment and The Treasury have been consulted. The Department of the Prime Minister and Cabinet has been informed.

Financial Implications

47 The cost of resources provided by the SSC, NZGP and MBIE to support the system-wide work programme can be met from existing respective baselines.

48 In Budget 19, additional funding of $2.000m over 2019/20 and 2020/21 was appropriated to Vote Internal Affairs: Government Digital Services multi category appropriation (MCA) to enable the GCDO to deliver its part of the work programme, subject to Cabinet approval of the overall work programme [CAB-19-MIN-0174.21 refers]. This funding is intended to enable the GCDO to lead the programme of work, provide oversight of agency payroll projects, and to coordinate agency procurements of payroll systems and services.

4rdol5z8ux 2019-10-01 13:18:37

9

Legislative Implications

49 Nil.

Impact Analysis - Regulatory

50 Not applicable.

Human Rights

51 Nil.

Gender Implications

52 Nil.

Disability Perspective

53 Nil.

Publicity

54 Nil.

Recommendations

55 The Minister of State Services recommends that the Committee:

1. note that in May 2018 the Cabinet Economic Development Committee considered evidence of non-compliance with the Holidays Act 2003, caused by both poor implementation of the Act and issues with the Act itself, and decided to establish a Holidays Act Taskforce to review the design of the Act and any other issues relating to its operation

2. note that in August last year, the Holidays Act Taskforce published an issues paper that identified the components of the problem and how these are manifest, making it clear that this is a multi-faceted problem with no single solution

3. note that reasons for non-compliance include that in many cases, agencies’ ability to comply with the Holidays Act is dependent on payroll system capability and configuration, with many payroll systems unable to easily cater to the complexity of calculations required, as well as the ‘set and forget’ approach taken by many employers, which leads to payroll systems and practice that do not keep pace with changes in the nature of work and changes in employment terms and conditions

4. note that to get a better picture of payroll system projects to improve compliance with the Holidays Act currently occurring across government, DEV directed the State Services Commission, together with other agencies as appropriate, to catalogue those existing and proposed projects, and report back to Cabinet with a list of those projects, including indicative costs, as soon as practicable

4rdol5z8ux 2019-10-01 13:18:37

10

5. note that a catalogue of current payroll system projects is included as Annex 1 to the paper

6. agree that the Government Chief Digital Officer leads, in conjunction with the State Services Commission and the Ministry of Business, Innovation and Employment, a work programme to improve the efficacy of processes to address government payroll issues generated by the provisions of the Holidays Act and jointly report back to the Cabinet Government Administration and Expenditure Review Committee by November 2019 on progress and further steps that may be needed

7. note that the programme of work will ensure that agencies have more effective and consistent payroll processes and will also deliver on-going cost savings by removing the need for agencies to design bespoke payroll processes, manage costly and lengthy procurement processes, and invest in complex configurations of payroll systems

8. note that the scope of the programme includes all Public and non-Public service departments and selected Crown entities (Accident Compensation Corporation, Earthquake Commission, Housing New Zealand Corporation, New Zealand Transport Agency, New Zealand Trade and Enterprise, New Zealand Qualifications Authority, Tertiary Education Commission, and District Health Boards)

9. note that the State Services Commission and the Ministry of Business, Innovation and Employment propose to use their existing baseline funding for their respective activities in this programme

10. note that additional funding of $2.000m over 2019/20 and 2020/21 for the GCDO to deliver its part of the work programme was funded in Budget 19 under Vote Internal Affairs: Government Digital Services multi category appropriation (MCA), subject to Cabinet approval of the overall work programme

11. agree that agencies where work to improve payroll systems is well progressed be allowed to proceed to procurement, subject to the agreement of the Government Chief Digital Officer, and that these agencies engage with the system work programme when it is established

12. note that this Cabinet paper will be proactively released subject to remediation and procurement costs being withheld due to Budget and commercial sensitivity.

Authorised for lodgement

Hon Chris Hipkins

Minister of State Services

Date:

4rdol5z8ux 2019-10-01 13:18:37

Annex 1: Payroll stocktake analysis of State Services agencies

An initial analysis of payroll investment data suggests that:

It is imperative that a system-wide programme is established to manage the significant risk profile of the current investment in payroll

systems as about one-quarter of agencies rely on systems that are over ten years old.

Any market intervention for payroll should focus on business process outsourcing providers as well as payroll systems providers because

about three-quarters of agencies mostly or completely outsource their payroll systems.

There is a significant opportunity to improve cost effectiveness of payroll systems

Note that:

This data was sourced from agencies in December 2018 as part of the system-wide analysis of digital, data, and ICT investments

undertaken by the GCDO. There are some omissions in the data and further work is anticipated to be undertaken once the programme of

work is established.

For some agencies their current payroll systems are part of an HR system and where agencies have only reported an HR system it has

been assumed that these include payroll functionality.

For proposed new investments, HR systems have been included if they explicitly include payroll functionality or they replace or upgrade an

existing HR system that is assumed to include payroll functionality.

4rdol5z8ux 2019-10-01 13:18:37

9(2)(b)(ii) prejudice commercial position


12

4rdol5z8ux 2019-10-01 13:18:37


13

4rdol5z8ux 2019-10-01 13:18:37


14

4rdol5z8ux 2019-10-01 13:18:37


17

Annex 3: The Holidays Act Taskforce and related government activities

The Holidays Act Taskforce

1. The Holidays Act Taskforce was established by DEV in May 2018 and comprises Business NZ, the Council of Trade Unions, and government, and is chaired by Professor Gordon Anderson, an employment law specialist from Victoria University. Officials from MBIE, the State Services Commission and Inland Revenue represent the government on the Taskforce. The State Services Commission is on the Taskforce to coordinate the state sector employer input to the Holidays Act review.

2. A key objective of the review is to design a system that will be easy to implement and can work in existing payroll systems. The Taskforce is working with payroll specialists and testing options for change with anonymised payroll data to ensure these options can be implemented in payroll systems.

3. In August 2018, the Holidays Act Taskforce published an issues paper that identified the components of the problem and how these are manifest. The paper makes it clear that this is a multi-faceted problem with no single solution. Public feedback was sought on the issues with a deadline of 12 October 2018.

4. The Taskforce found that while all employers and employees are affected by non-compliance with the Act, it is harder for some employers for different reasons. The Act is based around the concept of a working week. While a standard working week is easy to define where employees work regular hours with standard remuneration packages, increasingly flexible working arrangements make it difficult to determine a standard working week and accurately calculate entitlements on this basis.

5. The Taskforce is expected to provide its final report to the Minister for Workplace Relations and Safety in mid-2019. Following receipt of the Taskforce’s recommendations the Minister for Workplace Relations and Safety will report to DEV seeking agreement to a proposed government response.

6. The system wide work programme proposed in this paper will not have a governance role in relation to the ongoing review of the Act or development of the government response to the Taskforce’s recommendations. SSC, which is represented on the Taskforce and will be closely involved in the subsequent policy work on developing the government response to the Taskforce’s recommendations, will provide the necessary links between the government’s proposed response and the system-wide work programme.

Other system level solutions to payroll system issues

Potential changes to the legislation so that it is easier to administer

7. The Holidays Act was reviewed in 2001 and 2009 with the objective to make the legislation both easier to apply and more applicable to a wider range of working patterns beyond the standard five-day forty-hour working week. The resulting amendments to the Act failed to fully deliver on this objective.

8. The establishment of a taskforce to review the Holidays Act and recommend changes is the first step in the process of legislative change. A key barrier to

4rdol5z8ux 2019-10-01 13:18:37

18

designing legislation that is both flexible and easy to administer may lie in the basic building block of the legislation, which is the working week (with corresponding mandatory weeks of leave).

9. MBIE expects that work to re-design the Act will commence this year. Given that it is likely to require a complete re-think about how the Act operates, and will require tripartite agreement if it is to be effective, this is a longer-term solution (around two years).

Improve practice in applying the provisions of the current Holidays Act

10. The Taskforce’s issues report identifies practice that has resulted in incorrect calculations of entitlement under the Holidays Act. This arises from both failure to interpret the Act correctly, and poor administrative practice.

11. MBIE issued Holidays Act guidance in September 2017. This is a comprehensive 87-page document that includes detailed interpretation of the provisions of the Act, worked examples and key messages for employees and employers to support compliance.

12. The guidance also includes advice on sound administrative practice, for example accurate records of an employee’s working arrangements and pay that are regularly updated; and good faith discussions with employees, particularly when implementing the Act correctly, requires ongoing judgements to be made about what constitutes a working week and/or ordinary pay.

13. Poor administrative practice identified by the Taskforce often arises from employers relying too heavily on payroll systems to come up with the correct calculations. Problems typically arise when employers take a ‘one size fits all’ approach instead of working out entitlement for employees in ‘irregular’ situations (where judgement calls are required) outside the automated calculations of the payroll system; or taking a ‘set and forget’ approach instead of updating the payroll system with changed employee conditions as they occur.

14. Poor practice persists despite comprehensive guidelines that addresses these issues. This signals the need to do more than describe and communicate good practice – it needs to be embedded. This may involve any or a combination of: workshops and seminars; centres of excellence; identification and use of champions; discussion in professional associations (for example the HR General Managers network); or other approaches that have been successfully used in similar situations.

4rdol5z8ux 2019-10-01 13:18:37

I N C O N F I D E N C E GOV-19-MIN-0041

Cabinet Government Administration and Expenditure Review Committee

Minute of Decision

This document contains information for the New Zealand Cabinet. It must be treated in confidence and handled in accordance with any security classification, or other endorsement. The information can only be released, including under the Official Information Act 1982, by persons with the appropriate authority.


Portfolio State Services

On 19 September 2019, the Cabinet Government Administration and Expenditure Review Committee (GOV):

1 noted that in May 2018, the Cabinet Economic Development Committee (DEV):

1.1 noted compelling evidence of widespread non-compliance with the Holidays Act 2003, due to both poor implementation of the Act and issues with the Act itself;

1.2 agreed to establish a Holidays Act Taskforce to review the design of the Act and any other issues relating to its operation;

1.3 directed the State Services Commission (SSC), in consultation with other agencies asappropriate, to catalogue those existing and proposed projects, and to report back to Cabinet with a list of those projects, including indicative costs, as soon as practicable;

[DEV-18-MIN-0098]

2 noted that in August 2018, the Holidays Act Taskforce published an issues paper that identified the components of the problem and how these are manifest, making it clear that this is a multi-faceted problem with no single solution;

3 noted that in Budget 2019, Cabinet approved $2.000 million for Improving Government Payroll Systems, subject to the Minister of State Services reporting back to GOV seeking approval to the Government Chief Digital Officer (GCDO) leading a work programme to address government payroll issues generated by the Holidays Act 2003 [CAB-19-MIN-0174.21];

4 noted that reasons for non-compliance include that, in many cases, agencies’ ability to comply with the Holidays Act is dependent on payroll system capability and configuration, with many payroll systems unable to easily cater to the complexity of calculations required, as well as the ‘set and forget’ approach taken by many employers, which leads to payroll systems and practice that do not keep pace with changes in the nature of work and changes in employment terms and conditions;

1 I N C O N F I D E N C E 4rdol5z8ux 2019-10-01 13:19:15

I N C O N F I D E N C E GOV-19-MIN-0041

5 noted the catalogue of current payroll system projects, attached as Annex 1 to the paper under GOV-19-SUB-0040;

6 agreed that the GCDO lead, in conjunction with the SSC, New Zealand Government Procurement (NZGP) and the Ministry of Business, Innovation and Employment (MBIE), a work programme to improve the efficacy of processes to address government payroll issues generated by the provisions of the Holidays Act (the work programme);

7 directed the GCDO, SSC, NZGP and MBIE to jointly report back to GOV by 30 November2019 on progress of the work programme and further steps that may be needed;

8 noted that the work programme will ensure that agencies have more effective and consistentpayroll processes and will also deliver on-going cost savings by removing the need for agencies to design bespoke payroll processes, manage costly and lengthy procurement processes, and invest in complex configurations of payroll systems;

9 noted that the scope of the work programme will include all Public and non-Public service departments and selected Crown entities;

10 noted that the SSC and the MBIE propose to use their existing baseline funding for their respective activities in this programme;

11 agreed that, where work to improve payroll systems is well progressed, agencies be allowedto proceed to procurement subject to the agreement of the GCDO, and that these agencies engage with the system work programme when it is established.

Rachel ClarkeCommittee Secretary

Present: Officials present from:Rt Hon Winston PetersHon Kelvin DavisHon Grant Robertson (Chair)Hon Phil TwyfordHon Chris HipkinsHon Dr David ClarkHon David ParkerHon Nanaia MahutaHon Stuart NashHon Tracey MartinHon Shane JonesHon Peeni Henare

Officials Committee for GOV

Hard-copy distribution:Minister of State Services


I N C O N F I D E N C EGOV-19-SUB-0041

Cabinet Government Administration and Expenditure Review CommitteeSummary



Portfolio State Services

Purpose This paper seeks agreement for the Government Chief Digital Officer (GCDO), in conjunction with the State Services Commission (SSC), the NZ Government Procurement (NZGP) and the Ministry of Business, Innovation and Employment (MBIE), to lead a work programme to address government payrollissues caused by the Holidays Act 2003 (the Act).

Previous Consideration

In May 2018, the Cabinet Economic Development Committee (DEV):

noted compelling evidence of widespread non-compliance with the Act, due to both poor implementation of the Act and issues with the Act itselfand agreed to establish a Holidays Act Taskforce to review the design ofthe Act and any other issues relating to its operation;

directed SSC, in consultation with other agencies as appropriate, to catalogue existing and proposed projects, and to report back to Cabinet with a list of those projects, including indicative costs, as soon as practicable.

[DEV-18-MIN-0098]

In Budget 2019, Cabinet approved $2.000 million for Improving Government Payroll Systems, subject to the Minister of State Services reporting back to GOV seeking approval to the GCDO leading a work programme to address government payroll issues generated by the Act [CAB-19-MIN-0174.21].

Summary SSC’s stocktake of current payroll system projects (listed in Annex 1, page 11) found proposed new investments of around

however the cost data is incomplete.

The proposed new work programme (outlined in Annex 2), led by the GCDO with support from SSC, NZGP and MBIE, will provide a system-wide coordinated work programme and oversight of payroll projects, which will deliver on-going cost savings by removing the need for agencies to design bespoke payroll processes, manage procurement processes and invest in complex system configurations.

1I N C O N F I D E N C E4rdol5z8ux 2019-10-01 13:19:06



The work programme’s scope would cover all Public and non-Public Service departments and selected crown entities (ACC, EQC, Housing New Zealand, NZTA, NZTE, NZQA, Tertiary Education Commission, and DHBs).

Regulatory Impact Analysis

Not required.

Baseline Implications

GCDO will use the $2.000 million approved for this work in Budget 2019. SSC and MBIE will use baseline funding.

Legislative Implications

None from this paper.

Timing Issues The Minister recommends directing the GCDO, SSC and MBIE to jointly reportback to GOV by 30 November 2019.

Announcement None planned.

Proactive Release

The Minister of State Services intends to proactively release the paper under GOV-19-SUB-0040, subject to any remediation and procurement costs being withheld due to Budget and commercial sensitivity.

Consultation Paper prepared by SSC. Treasury, MBIE (Economic Development), and DIA were consulted. DPMC (Prime Minister) was informed.

The Minister indicates that the Minister of Finance and the Attorney-General, New Zealand First and the Green Party were consulted.

The Minister of State Services recommends that the Committee:

1 note that in May 2018, the Cabinet Economic Development Committee (DEV):

1.1 noted compelling evidence of widespread non-compliance with the Holidays Act 2003, due to both poor implementation of the Act and issues with the Act itself;

1.2 agreed to establish a Holidays Act Taskforce to review the design of the Act and any other issues relating to its operation;

1.3 directed the State Services Commission (SSC), in consultation with other agencies asappropriate, to catalogue those existing and proposed projects, and to report back to Cabinet with a list of those projects, including indicative costs, as soon as practicable;

[DEV-18-MIN-0098]

2 note that in August 2018, the Holidays Act Taskforce published an issues paper that identified the components of the problem and how these are manifest, making it clear that this is a multi-faceted problem with no single solution;

3 note that in Budget 2019, Cabinet approved $2.000 million for Improving Government Payroll Systems, subject to the Minister of State Services reporting back to the Cabinet Government Administration and Expenditure Review Committee (GOV) seeking approval to the Government Chief Digital Officer (GCDO) leading a work programme to address government payroll issues generated by the Holidays Act 2003 [CAB-19-MIN-0174.21];



4 note that reasons for non-compliance include that, in many cases, agencies’ ability to comply with the Holidays Act is dependent on payroll system capability and configuration, with many payroll systems unable to easily cater to the complexity of calculations required, as well as the ‘set and forget’ approach taken by many employers, which leads to payroll systems and practice that do not keep pace with changes in the nature of work and changes in employment terms and conditions;

5 note the catalogue of current payroll system projects, attached as Annex 1 to the paper underGOV-19-SUB-0040;

6 agree that the GCDO lead, in conjunction with the SSC, New Zealand Government Procurement (NZGP) and the Ministry of Business, Innovation and Employment (MBIE), a work programme to improve the efficacy of processes to address government payroll issues generated by the provisions of the Holidays Act (the work programme);

7 direct the GCDO, SSC, NZGP and MBIE to jointly report back to GOV by 30 November 2019 on progress and further steps that may be needed;

8 note that the work programme will ensure that agencies have more effective and consistent payroll processes and will also deliver on-going cost savings by removing the need for agencies to design bespoke payroll processes, manage costly and lengthy procurement processes, and invest in complex configurations of payroll systems;

9 note that the scope of the work programme will include all Public and non-Public service departments and selected Crown entities;

10 note that the SSC and the MBIE propose to use their existing baseline funding for their respective activities in this programme;

11 agree that, where work to improve payroll systems is well progressed, agencies be allowed to proceed to procurement subject to the agreement of the GCDO, and that these agencies engage with the system work programme when it is established.

Rachel ClarkeCommittee Secretary

Hard-copy distribution:Cabinet Government Administration and Expenditure Review Committee


I N C O N F I D E N C E CAB-19-MIN-0492

Cabinet

Minute of Decision


Report of the Cabinet Government Administration and Expenditure Review Committee: Period Ended 20 September 2019

On 23 September 2019, Cabinet made the following decisions on the work of the Cabinet Government Administration and Expenditure Review Committee for the period ended 20 September 2019:

GOV-19-MIN-0040 Enduring Letter of Expectations for Statutory Crown EntitiesPortfolios: Finance / State Services

CONFIRMED

GOV-19-MIN-0041 Improving Government Payroll SystemsPortfolio: State Services

CONFIRMED

Michael WebsterSecretary of the Cabinet

Hard-copy distribution:Cabinet Government Administration and Expenditure Review Committee


Hon Chris Hipkins Minister of State Services · This is a suite of documents released in part by the Hon Chris Hipkins, Minister of State ... on their ability to develop a compliant

Documents