The Ministry of Business, Innovation and Employment is scrambling to resolve an issue with its payroll system that has resulted in some of its workers being paid the wrong amounts in holiday pay.

The department, which employs about 3000 staff, discovered the problem after a staff member queried their holiday pay.

Economic Development Minister Steven Joyce, who was brought in to resolve the Novopay debacle, said it was not another Novopay.

"And I know because I was there."


The scale of the problem was unknown but the problem could date back more than a decade. Some staff had been underpaid while others were overpaid.

"It related mostly to the Holidays Act and the calculation of holiday entitlements. It's too soon to say how many have been affected but the majority of issues appear to be minor on an employee-by-employee basis."

MBIE is the regulator of the Labour Inspectorate and Mr Joyce said measures were taken to ensure an "arms length" relationship.

"The Labour Inspectorate can make enforceable undertakings on MBIE and will do if they need it but they're determined to resolve it."

Labour's economic development spokesman David Clark said it was a further embarrassment for Mr Joyce and MBIE after extravagance in its office overhaul. "It is a fundamental part of any organisation to be able to pay its staff properly. That the Ministry of Business cannot pay employees effectively is deeply embarrassing."

The payroll system was originally used by the Department of Labour and adopted by MBIE after the merger of the Government departments.

It is an embarrassment for the department, which is charged with overseeing employment laws.

Mr Joyce said he was not sure if the problem related to the tax treatment of holiday pay.

MBIE has been in discussions over nationwide changes to the interpretation of the taxing of holiday pay after the Payroll Practitioners' Association, Council of Trade Unions and Business NZ raised concerns about a recent change to the way bosses were told to tax holiday pay.

That was after Inland Revenue issued a declaration for lump sum payments of annual leave to be treated similarly to a bonus rather than as ordinary wages spread out over the period the leave related to. The groups said it was a change to the way annual leave had long been calculated and could mean some employees would be taxed more for the pay, such as those paid annual leave as a lump sum before their holiday or when accrued leave was paid out when a worker left their job.

Inland Revenue said its own online calculators had caused confusion and maintained it should be taxed as a lump sum. It would not require people taxed under the old system who had not paid enough tax to pay it back.