A Ministry of Social Development (MSD) review of whether people were wrongly denied the benefit based on redundancy payments has found mistakes in close to 9 percent of the cases surveyed.
MSD said it showed there were "no systemic issues" but a benefit law expert said it was a "gravely alarming" figure.
The sample of cases reviewed was drawn from applications between February 7 and May 15 this year. It does not reveal the nature of the problem over a longer time frame nor the overall number of cases MSD handles where redundancy payments are a factor.
During lockdown levels 3 and 4, nearly 40,000 people applied for the benefit. Typically, Work and Income handles 30,000 to 40,000 applications a quarter. MSD was unable to say how many of these cases involved a redundancy payment as the information is not held centrally but on individual client files.
However, as part of the review it randomly sampled 185 cases where redundancy was mentioned on a case file. In 30 percent (56) of these, a redundancy payment had been made to the applicant.
Five of the 56 were wrongly told that they could not receive a benefit yet due to their redundancy payment. This was an error rate of 8.9 percent. The geographical spread was not detailed.
Kay Read, group general manager for client service delivery, said "the review found there are no systemic issues".
"Our review has found decisions are being made correctly in the majority of cases, with errors found in a small proportion of cases. The review has also found our guidance to staff is accurate.
"However the review has found there is room for improvement in our practice to reduce some errors being made.
"As a result we will be updating our guidance to staff to ensure it is clearer and easier to follow."
It had found the treatment of redundancy payments was complex as they were treated in different ways in the welfare system.
Ben Hoffman, a benefit law specialist with Community Law, said based on the review it was "absolutely not" possible for MSD to suggest there were no systemic issues.
"An error rate of 8.9 percent is gravely alarming considering the law has been absolutely clear for decades, as has their fundamental constitutional function to apply it properly.
"It is inevitable people make mistakes and it is not the fault of the individual, but I would expect on any issue for it to be only perhaps 1-2 percent and for it to be quickly picked up and fixed. Clearly this has not happened here."
Hoffman said this very issue came before the Social Security Appeal Authority in 2014 and MSD admitted any advice somebody had to "live on" their redundancy was generally incorrect.
"The Authority concluded the staff guidance could 'quite possibly' mislead somebody to not apply the law correctly."
He believed MSD had a history of poorly implementing adverse judicial decisions which continued to result in practices that were unacceptable. He was not confident MSD had a good handle on this issue.
"If the information is not centrally stored it is up to potentially affected people to contact MSD. We have previously seen poor uptake of this with the Ruka review about incorrect relationship status decisions in the early 2000s.
"I suspect this could be widespread. While benefit law can be very complex, I (respectfully) strongly disagree with Kay Read. The law on this issue is very clear and has been so for decades. The only complexity is getting them to apply it properly."
He agreed with Read that staff worked hard and wanted to do the right thing but, given previous events, he was not confident anything would change at a systemic level.
"MSD ought to try every possible avenue of proactively finding potentially affected people from the data it can mine. The High Court has been clear the ministry must be proactive in seeing to welfare and not overly defensive or bureaucratic. Passively asking people to contact them is not being proactive."
Hoffman said when an error was found MSD needed to fix it and pay arrears.
"If that person has suffered unnecessarily, they must proactively assess if the chief executive should compensate them for that, as she has the power to do."
RNZ has been inundated with responses from people around the country claiming they were affected by wrongful denials of benefit applications, with some dating back to the early 1990s.
Read said as of May 26, 355 people had contacted it with concerns about how they had been treated and these were being worked through.
Some, in Auckland, Christchurch and Palmerston North, have told RNZ they had received back payments after challenging the original decision.
"We take seriously our obligation to make correct decisions for those who need our assistance," Read said.
"We want to reassure all our clients that our staff work very hard to make the right decisions and ensure people get what they are entitled to.
"We encourage anyone who thinks we may have made an error to contact us. People can call our contact centre, or use the online form on our website."
She said in terms of more historical cases, it was reviewing these as part of the group of people who had come forward.
Hoffman said people wanting free and independent help to investigate this or help to receive their full entitlements should contact their local Community Law Centre, or if they had one in their area, a benefit advocacy service.
The issue first came to light after RNZ highlighted the case of an Auckland hotel worker, who was told she would have to wait months for a benefit due to her COVID-19 redundancy payout. Her case manager said it was the way she had been applying the rules for many years.
MSD admitted the error but it raised deeper issues because staff may have been wrongly advising applicants about the impact of redundancy on the benefit waiting time for decades. Lawyers who work in the area said the issue could affect "potentially up to tens of thousands of people".
Work and Income has provided more information on redundancy payments and benefits here.