MBIE, the ministry hit by payroll problems, refuses to name the supplier of its system

The Government is refusing to name the supplier of a ministry payroll system after potentially thousands of state servants were underpaid.

This week the Ministry of Business, Innovation and Employment (MBIE) confirmed it had underpaid staff, potentially for up to 10 years, because of an error calculating holiday and shift entitlements.

A spokeswoman for Economic Development Minister Steven Joyce, who is responsible for MBIE, said releasing the name of the supplier was the ministry's call.

But it has refused to name the provider, after treating Stuff's query formally as an Official Information Act request, saying it "would be likely unreasonably to prejudice the commercial position of the person who is the subject matter of the information".

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Labour economic development spokesman David Clark said the ministry should be more transparent.

"'it is clearly affecting employees who have not been receiving their legal entitlement. That is breaking the law."

The Government should come clean and name the supplier, because the issue was likely to go wider and the agency affected - MBIE - was also responsible for overseeing workplace laws.

Prime Minister John Key and his deputy Bill English had earlier referred questions to State Services Minister Paula Bennett but she, too, has refused to say who provided MBIE's payroll system.

"I am not prepared to name or blame any company or agency for this issue," she said.

"The private sector initially alerted us to the problem in 2014, and we have been working through this since then. We've spent the last year looking across Government, and to date Police and MBIE are the only State-sector agencies reporting significant issues, and it took them months to figure out the extent of the problem owing to the complexities of accounting for so many different individual pay rates."

MBIE Minister Steven Joyce has said the underpayments could total in the millions of dollars and affect up to 3000 people.

And English on Tuesday warned the issue could be widespread, including in the private sector.

He said he did not believe it was an issue of "lack of competence" but was due to the complexity of the Holiday Act. The "sheer complexity" of that law meant there was a higher likelihood software writers got it wrong.

Police have already paid out more than $30m to staff to correct their underpayments, but no figure has been put on MBIE's bill.

Meanwhile the Unite union has warned fast food, security and cinema staff are likely to be among the workers most affected by incorrect leave payments which it said were "rife".

There are two ways holiday pay can be calculated – on the basis of ordinary weekly pay at the beginning of the holiday or the average weekly earnings over the previous 12 months. Employers must pay whatever gives the employee more money.

But payroll systems are usually not easily adjustable for variations that can occur in staff pay over the year.

BusinessNZ and the NZ Payroll Practitioners Association have called for the Holiday Act to be reviewed because they say it is too complex and does not work with many employment situations.

But the Unite union said it was more a case of businesses taking the easy way out.