Cleaning up our Holidays Act

The fact that many Kiwi employers have been found to be miscalculating employees’ holiday pay shows system-wide confusion around the Holidays Act. Employers have unintentionally fallen into non-compliance, with misunderstandings around how to apply Holidays Act entitlement and payment rules commonplace across both public and private sectors. Employers whose employees work irregular hours are particularly liable to confusion, given the complexity of the calculations.


The Ministry of Business, Innovation and Employment (MBIE) recently issued new guidance on how the Act should be interpreted to assist employers in complying with the Act. However, while this guidance has helped employers in interpreting the correct way to apply the Holidays Act moving forward, it does not address how to resolve historical issues, which requires employers to review historical payroll records and recalculate workers’ holiday pay where it’s known that incorrect payments have been made in the past.   While individual employee amounts may be quite small, these can soon mount up when summed across the entire organisation.

Guidelines provide more clarity for employers

With input from Datacom and other payroll experts, MBIE released new guidelines in late 2017, clarifying employers’ obligations under the Holidays Act. The new guidance is intended to help employers make the right judgements around how much holiday pay they are required to provide to employees.

Datacom is refining its payroll software to make it easier for employers to spot when issues arise and to make it easier to maintain holiday entitlements when employees working patterns change. However, given the risk of non-compliance and the potential for a large back-pay bill, it’s important that employers inform themselves about their responsibilities under the MBIE guidelines without relying on a “set and forget” approach.

Further work to be done on resolving compliance issues

While calls to change the Holidays Act gain momentum, it is important to point out that previous attempts to address issues in the Act have not had the desired effect. Amendments to the Act in 2010 had little impact in simplifying its application and for some added more confusion. That’s not to say that a better alternative may exist, but it will take considerable effort from government, business and employee representative organisations to agree on a way forward.

Additionally, while we need to think carefully about how we might move forward, equal thought should also be applied to how employers might fairly wrap up any outstanding misapplications of the Act before we shift the goalposts further. Addressing future compliance without providing a pragmatic solution for past problems will only result in solving half the problem facing employers.

By continuing to work together and considering all the issues without rushing into new solutions, all stakeholders can ensure any further changes are made in a way that’s equitable and straightforward for everyone.

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