Addressing Holidays Act non-compliance

The Labour Inspectorate supports employers to comply with the Holidays Act 2003 through government-industry workstreams, audits and investigations, and education and information.


A number of joint industry government Payroll Sector Leadership workstreams were established during 2016 to consider how to improve compliance with the Act. This includes a leadership and governance group, and four workgroups.

The Payroll Leadership and Governance group (PLG) was set up to oversee the Payroll Sector Leaders workstream groups, which have different focus areas to aid in improving compliance with the Act. The PLG directs and steers the groups, and raises and discusses overarching areas of potential impact on employers’ compliance with the Act. The group comprises payroll sector leaders based on their professional business knowledge and industry-specific expertise.

The purpose of the Payroll System Functionality group (PSF) is to identify ways to improve the capabilities of payroll systems and how they are used. This includes working with the Ministry of Business, Innovation and Employment (MBIE) to develop guidance intended to help employers and employees in applying aspects of the Act.

Pay for leave and holidays guidance

The PSF group is integral to identifying areas of concern and creating the scenarios that will help people to comply with the Act. The PSF group comprises MBIE, payroll system providers, professional service providers and a payroll practitioner body.

The purpose of the Payroll Practitioner Professionalisation group (PPP) is to initiate, develop and support a network of payroll professionals to allow specialists to share their experiences and advice on best practice in order to grow and maintain payroll standards in New Zealand. The PPP is also exploring ways in which payroll can be developed as a career.

The group comprises representatives with a range of interests in the payroll practice sector, including small business representatives and professional bodies, as well as senior industry professionals from the public, private and non-profit sector.

The key objective of the Payroll Function Assurance Model group (PFAM) is to consider all aspects of the lifespan of a payroll system, from the point of purchase through to installation, implementation, maintenance, and user interaction, and to determine where the responsibility lies in ensuring a system’s reliability at each of these stages.

PFAM is also considering whether a model can be put in place that is capable of ensuring end-to-end payroll system compliance with the Act. The group comprises representatives from organisations with an interest in the provision of assurance, including legal practitioners, professional service providers, payroll practitioners, auditing and accounting bodies, and government.

The key objective of the Payroll Operational Procedures (POP) group is to create a set of standard operating payroll processes that employers can use for setting up and monitoring their own payroll system, and tips on how to use these tools to keep payroll processes up-to-date.

Members of the group comprise senior industry professionals from the public, private and non-profit sector, and assurance specialists.

News and updates

The Labour Inspectorate’s approach to supporting compliance also involves:

  • proactive and reactive audits and investigations of employers
  • education and information including guidance on how to check that an employer's payroll system complies.

Paying via payroll system

Audits and investigations

The Labour Inspectorate has defined a “payroll audit” using the following criteria:

  • the payroll audit tests if an employer has been calculating employee annual leave entitlements and payments for BAPS leave (bereavement leave, alternative holiday, public holidays and sick leave) in a manner that is compliant with the Holidays Act 2003
  • the organisation has/had at least 20 employees, and
  • the payroll system is/was electronic.

Payroll Audit update as at 30 June 2020

Jul 2012 – Jun 2020
Cases categorised as “Payroll audit” 241
incl 101 proactive
Completed audits 201
incl 89 proactive

Of the completed audits

Jul 2012 – Jun 2020
Cases where one or more compliance tool applied
NB. It is possible for multiple tools to be used in respect of one case
Enforceable Undertaking 171
Improvement Notice 42
Referral to the Employment Relations Authority 5
Record of Settlement 2
Voluntary compliance 6

As shown above, one or more compliance tool(s) has been applied in respect of 187 of the 201 completed payroll audit cases. The remaining cases are still under consideration by the Labour Inspectorate.

A number of employers identified they had Holidays Act non-compliance prior to the Labour Inspectorate making contact. These employers signed an Enforceable Undertaking without an audit report being produced.

Payroll Audits commenced and completed

Graph of payroll audits commenced and completed

An Enforceable Undertaking is a voluntary commitment by the employer to address certain defined breaches within a certain timeframe. If that does not happen, the Employment Relations Authority (ERA) can issue a compliance order and if that is not followed, then an order for penalties. If for instance money owed to workers is not paid, the breach may go straight to the District Court for civil debt enforcement proceedings.

An Improvement Notice describes the employment law breach, and sets out the date and steps by which the employer must remedy the breaches. If the employer fails to do so, the Labour Inspector may seek enforcement through a compliance order from the ERA.

Holidays Act non-compliance remediation payments update as at June 2020

Jul 2012–Jun 2020
Number of employers who have paid arrears (average gross payment per affected employee) 112
  • $500 per employee or less
  • Between $501 and $1,000
  • $1,001 or more
Amount of arrears paid $237.7m
Number of employees paid arrears 227.3k
Range of average gross payment per affected employee per employer $29 - $16.2k

Figures reported above now include NZ Police data.

* Due to the nature of employment relationships some employees may have been counted multiple times.

Gross payout by number of affected employees

Graph of the gross payout by number of affected employees

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Page last revised: 09 October 2020

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