As holiday season officially begins and with many businesses due to close down over the Christmas period, it is important for employers to ensure that they are meeting their obligations under the Holidays Act 2003. This is particularly important for businesses with employees who work fluctuating or irregular hours, or who pay allowances or bonuses.

The correct methods for calculating pay for annual leave, public holidays, sick leave and bereavement leave are set out in the Holidays Act 2003. They can be complicated and many employers struggle to work out what their obligations are. This leads to an increased reliance on payroll systems.

In turn, payroll systems are reliant on the correct input of employee data and need to be configured in accordance with the Holidays Act 2003 and its various amendments over time. Unfortunately, the reality is that many employers 'set and forget' and/or take a 'one size fits all' approach'. In other words, information is not regularly reviewed for ongoing compliance and systems are configured broadly without taking individual work or pay arrangements into consideration.

This can lead to a significant disparity between the payments an employer is required to make under the Holidays Act 2003 and what an employee is actually paid.

Employers who are found in breach of the Act will be required to back pay all current and former employees any arrears owing for the previous six years. Arrears payments can be significant - between July 2012 and June 2017, 9,700 New Zealand employees were paid $4.5million in holiday pay arrears by New Zealand employers.

For more serious cases, employers may be liable to pay penalties for non-compliance of up to $20,000 per breach – in addition to any arrears payments. The Holidays Act 2003 also provides that where the breach is committed by an entity such as a company, a person who is an officer of the entity may be treated as a person involved in the breach and may be held personally liable to any penalties or arrears payments. This includes directors, partners and any other person who is in a position to exercise significant influence over the management or administration of the entity. This can extend to HR, payroll managers and even external advisors.

We recommend that employers take a proactive approach and conduct a "health check" of their payroll system. For a basic health check, employers should ensure at least, that the payroll system:

  • Provides an accurate wage and time record;
  • Is able to accommodate varying work patterns; and
  • Is updated in accordance with the Holidays Act 2003 (including any subsequent amendments).

For a more comprehensive health check, employers could select a sample of employees and compare their holiday payments against their entitlements under the Holidays Act. Employers can either calculate entitlements themselves by taking a manual approach (pen, paper and calculator) or engage a specialist to calculate the entitlements for them.

We also suggest that employers have discussions with their payroll provider to determine what method of payment they are using to pay employees and obtain legal advice to ensure compliance with their obligations under the Holidays Act 2003.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.