Auditor General John Ryan

A miscalculation of holiday pay by the Ministries of Health and Education looks likely to cost the Government at least  $2.1 billion.

And it seems the Health payments which may total as much as $2 billion have been owed since at least 2018 but may be paid out in the second half of this year.

Those payments are likely to go to 270,000 current and former staff.

The miscalculation may date back as far at least as 2018, possibly as far as 2010, which is why the bill is so high.

Auditor General John Ryan revealed the figure to a Select Committee last month.

The holiday pay will cover all school teachers and all hospital staff across the country.

The Auditor General told Parliament’s Finance and Expenditure Committee last month that he had been raising the issue since 2018.

But it is part of a public-service-wide issue that saw holiday pay miscalculated in many agencies and which forced the Police in 2016  to pay $33.3 million to 15,750 of police staff for what they had been short-changed.

The Auditor General, John Ryan, told the Committee that the Health bill (much of which will now have to be absorbed by Whatu Ora) is likely this year to climb above $2 billion.

Ryan compared the sum owing with the controversy over last year’s Cost of Living Payment, which was sent to over 100,000 people who turned out not to be eligible for it.

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“If you think about the cost of living payment, it was $800 million, so the liability now for holiday pay that’s been incorrectly paid is now two and a half times the cost of living payment, and I think that’s both now a financial issue but kind of an issue of integrity as well, that this does need to be settled,” Ryan told the Committee.

“it is time; it really is.

“There are hundreds of thousands of people here that are affected, and not necessarily high-paid people either, so it’s time to settle it.

“And given the scale, relative, as I said, to the cost of living payment, it’s a significant amount of money.”

It is.

The Government’s financial statements for the year ended June 30, 22, show a provision for the Ministry of Health holiday pay of $1.654 million and for the Ministry of Education of $421 million.

But that was nearly a year ago, and since then, Ryan estimated the potential Health payment would have gone up by $300 million.

Given that this year’s Budget allowance for new spending is $4.5 billion and that some of that has already been allocated (ironically, to health), the fiscal impact of a payment being made in the 2023/24 year would be noticeable.

Finance Minister Grant Robertson is currently at the IMF in Washington, so he was not available for comment yesterday.

But as time goes by, the size of the potential payout gets larger.

“Every time someone takes a holiday that’s affected by this, the liability grows,” said Ryan.

The issue has been complicated by the complexity of the payment entitlements for those who work in hospitals, partly because of the roster and shift patterns that they work.

“Part of the delays in the finalising has been there have been matters of dispute they’ve had to work through on interpretation,” Ryan said.

“I think the most recent one just settled before Christmas, which was—it sounds an odd description, but “what is a week” was one of the challenges.

“So once they’ve done all that, they can then go back and calculate it and then they can go and pay.”

The issue is so complex and of such a size that Treasury has had to become involved.

“This is of a scale and significance that could actually undermine the financial statements of Government if they’re not calculated correctly because of that scale,” said Ryan.

“So we also think Treasury should have had a leadership role in there, and last year I think they stepped into that role.

“And now it’s a matter of just getting it off the balance sheet and paid, because that’s where the issue really is; we’re not paying people correctly.”

The former Health Minister, David Clark, who held the office in 2018 when the holiday pay started to become a major issue, said one of the reasons for the failure to pay was that the various pay software programmes did not take into account of the complexities in the Health payment system, which, apart from anything else was not administered centrally but by 20 District Health Boards.

“There was a lack of available software products for handling pay issues with simplicity,” he said.

“All of the big companies and big providers claimed that they were compliant with the Holidays Act—you simply had to do a manual workaround in the case of any variation, which basically meant any holiday was what it boiled down to.

“And the people administering the systems truly believed they were compliant, but the software just simply didn’t make it easy for them, and that had gone a long way back.”

The liability has now been transferred to Whatu Ora, and a spokesperson yesterday said there were plans to make the payment this year.

“Health is one of New Zealand’s largest workforces, and this is a significant body of work, with an estimated 270,000 current and historic employees covered by Holidays Act remediation projects, and more than 20 payroll and rostering systems are impacted,” the spokesperson said.

“Te Whatu Ora project teams across New Zealand are working to recalculate former and current staff holiday pay as efficiently as possible without compromising the process and outcomes.  

“It is anticipated that we will be on a pathway to making payments to current staff, district by district, starting from July 2023.

“We cannot be more specific that this at the moment, given the processes that need to be worked through prior to any payments being made.”

Given the staffing pressures facing the health sector and the claims that low pay is part of the cause, the additional payments from this liability will undoubtedly be welcome even though the Finance Minister may not welcome another $2 billion being dropped into the economy with the potential inflationary impact that may have.