New Zealand's school payroll service will come under Government management in October of this year.

After lengthy negotiations, the Ministry of Education and the existing school payroll provider, Talent2, have settled both on the amounts payable by Talent2 towards the costs of remediating the Novopay service and a new operating model for the school payroll system.

The new model involves a new government-owned company taking over the operation of the payroll service, and Talent2 licensing the core Alesco software to that company.

The settlement provides for Talent2 to pay the Ministry between $18 million and $22 million, made up of $7 million in cash and other considerations including a license for the Alesco software and discounted fees for the support and maintenance of this software.

The Ministry also obtains full ownership of the customisations of the software created for the Novopay project which is valued by Talent 2 at between $15 million and $18 million, and which has been funded by the Ministry through its Novopay contract.

The settlement amount covers both the contractual changes and the "day of reckoning" process.

Minister Responsible for Novopay Steven Joyce says the decision to transfer the service to a Government-owned company was made by mutual agreement between the Ministry of Education and Talent2.

'This decision has been made in the best interests of all parties: staff, administrators, schools, and the Government,” Mr Joyce says.

'It became the logical next step towards giving schools a more stable, sustainable and simple payroll service.

'Considerable effort has been made by both Talent2 and the Ministry of Education to stabilise and improve the payroll delivery system since the original issues arising from ‘Go Live' in August 2012.

'I've been pleased to note that the payroll has remained within the 0.5 percent acceptable steady state error rate over the past 15 months for all but the three ‘start of year' payroll cycles at the beginning of this year.

"However further changes are required to the system and the service model to make the system easier to operate for school administrators. On top of that, keeping the system performing at its current level under the current operating model has remained very expensive for both taxpayers and the payroll provider.

Talent2 was not prepared to provide the extra resources that are necessary for further development of the system within the current contractual arrangements."

Responsibility for payroll processing and service centre activities will therefore pass to the new Government-owned company effective from 17 October this year. That company will also be responsible for the customisations of the software.

'A key recommendation of last year's Ministerial Inquiry into Novopay was the need for the Ministry to re-examine the school payroll service delivery model and to re-negotiate the contract with Talent2 to resolve outstanding contractual and service issues. That has now been done,” Mr Joyce says.

Mr Joyce says work will continue on the substantial improvement programme that's already underway including improving the readability of pay slips and Staff Usage and Expenditure (SUE) reports, and resolving outstanding leave issues.

'We'll also be simplifying the school payroll. The current system requires two thirds of all teaching and non-teaching support staff have their details changed every year. This sort of complexity has caused problems for not one but two pay systems over the past decade and it's not sustainable,” Mr Joyce says.

'In the meantime, current service levels and staffing will be maintained throughout the transition with the full support of Talent2. Talent2 will retain operational responsibility during the transition and has committed to working closely with the Ministry to make the transfer as smooth as possible.

'These changes are a very important next step in completing the work to remediate the school payroll. They will lead to a high quality sustainable payroll operation.”

Source: Office of Steven Joyce.