Are You Holidays Act Compliant? What Every Employer in New Zealand Needs to Know
If you have employees, Holidays Act compliance is one of the most important payroll issues to get right in New Zealand right now. It is also one of the most commonly misunderstood, and the consequences of getting it wrong can be significant.
Here is what every small business employer needs to understand, including what the law actually requires, why software is not enough on its own, and what is changing in 2028.
Is Your Payroll Getting Holiday Pay Right?
Having payroll software does not automatically mean every leave calculation is correct.
Under the current Holidays Act 2003, annual holiday pay is generally paid at the greater of:
Ordinary Weekly Pay (OWP) — what the employee would ordinarily earn in a week, or
Average Weekly Earnings (AWE) — based on earnings over the relevant previous 12 months.
For sick leave, bereavement leave and alternative holidays, Relevant Daily Pay (RDP) is generally used, or Average Daily Pay (ADP) where the Holidays Act allows it.
Importantly, RDP and ADP are not compared to see which is higher. Which calculation can be used depends on the employee's circumstances.
Public holidays have additional rules, including whether the day would otherwise have been a working day.
The takeaway? Payroll software is a useful tool, but correct employee information, work patterns and payroll setup still matter when meeting Holidays Act requirements. If you are unsure whether your payroll is set up correctly, it is worth checking before a small error becomes a much bigger one.
Why Non-Compliance Is So Common
Holidays Act non-compliance is widespread across New Zealand businesses of all sizes. It is not usually the result of deliberate underpayment. It happens because the calculations are genuinely complex. After all, payroll software varies in how it handles them, and most employers trust their system to get it right without independently verifying the output.
The problem compounds over time. A small calculation error applied to every leave payment over several years can add up to a significant amount of back pay owed.
The Employer Is Always Responsible
This is the point that surprises many employers. Regardless of which payroll software you use, you as the employer are fully responsible for the accuracy of every leave and payroll calculation. Employment New Zealand does not accept software error as a defence.
The obligation to check, verify, and ensure the figures are correct sits with the employer. This means that relying on a system without independently reviewing its outputs is a compliance risk, however reputable the software.
What Getting It Wrong Can Cost
When leave calculations are found to be incorrect, the employer is required to back pay all affected employees for the full period of the error. Depending on the number of staff involved and how long the issue has gone undetected, this can be substantial.
Additional consequences can include penalties from Employment New Zealand, interest on amounts owed, and the cost of a formal remediation process. Employers who identify and fix errors voluntarily are treated more favourably than those whose non-compliance is discovered through an external investigation.
How a Bookkeeper Can Help
Part of a bookkeeper's role for clients with staff is making sure payroll figures are not just processed on time but are actually correct. This includes checking that the right calculation method is being applied for each type of leave, that rates are accurate, and that records are detailed enough to demonstrate compliance if they are ever reviewed.
If an issue is identified, a bookkeeper can help document the error, understand the scope of any back pay owed, and put better processes in place going forward. Catching a problem early and fixing it proactively is always better than having it discovered later.
What Is Changing in 2028
The Employment Leave Act received Royal Assent on 6 August 2026 and will replace the current Holidays Act from 6 August 2028. The new Act is intended to simplify leave calculations and make compliance more straightforward for employers.
Employers have a two-year window to prepare. This includes updating payroll systems, reviewing leave policies, and ensuring staff records are accurate and complete.
The businesses best placed for that transition are the ones who are already getting it right under the current rules. Getting compliant now means building on a solid foundation, not trying to fix a backlog of errors at the same time as implementing a new framework.
What to Check Right Now
Is annual leave being calculated at the greater of Ordinary Weekly Pay or Average Weekly Earnings?
Are sick leave, bereavement leave, and public holiday payments using the correct method?
Has your payroll setup ever been independently reviewed?
Do you have accurate leave records going back at least 12 months?
If you are not confident about any of these, now is the right time to get it looked at.
Have a question about your payroll, let's chat?
Comments