Holiday pay underpayments, partly due to faulty payroll systems, are now believed to have run into hundreds of millions of dollars across the country.

Labour inspectors' investigations have found gross arrears totalling $33 million by six employers, including $30 million in the police, and a further $1.2 million in net arrears owed by two other companies.

Inspectorate general manager George Mason said all 20 employers investigated for Holiday Act issues since 2012 were found to have breached the 2003 Holidays Act. A further 22 inquiries were still under way, and inspectors planned further "targeted investigations".

Council of Trade Unions president Richard Wagstaff said "tens of thousands" of workers were now believed to have been underpaid.


"The cost could be in the hundreds of millions given the scale of the experience with the police and knowing that that was the tip of an iceberg.

"But I don't think it's at a level that's going to put any business in trouble. We think it's affordable and we need to take a rational and sensible approach to sorting it out."

A Palmerston North payroll provider, Matt Gardner of Smoothpay Payroll, said yesterday that most of New Zealand's 2 million workers had probably been underpaid for annual leave or statutory holidays because of faulty payroll systems.

"The majority of the payroll systems used in New Zealand still fail to comply with the Holidays Act."

Payroll Practitioners Association chief executive David Jenkins agreed that non-compliant systems were "definitely a time bomb". But he doubted that the problem affected a majority of workers. "A large percentage would be compliant. I think all employers need to check their payroll systems because they are ultimately liable."

Steve Nathan, who ran his own payroll company for 16 years before selling it to MYOB in 2006, said some of the biggest payroll systems did not track daily hours, which are required to work out pay rates correctly for sick leave and public holidays.

He said the company he now worked for, Crystal Payroll, was designed to include daily hours but not all employers recorded them.

"If you have clients who don't want to do that, we teach them an alternative method," he said.

Simon Martin of Wellington employment law firm Quigg Partners said "close to a majority of payroll systems" were "not quite attuned" to dealing with the act's complexity.

Workplace Relations Minister Michael Woodhouse said he hadn't ruled out making changes to the act "but it's not being actively pursued at this time".

Holiday pay Q&A

What's the problem?

Labour inspectors say some employers, and some payroll systems, have not been calculating holiday pay correctly since the law changed in 2004. Inspectorate manager George Mason says the main problems are:

1. Some employers are not paying holiday pay at either someone's ordinary weekly pay rate or their average pay rate over the past 52 weeks, whichever is higher.

2. Some systems don't record paid days, needed to calculate pay for sick leave and public holidays.

3. Some systems don't include extras such as shift allowances in their calculations for leave.

Who is affected?

Mistakes mainly affect people working irregular hours or getting extra pay on top of wages such as shift allowances or commission. Those on regular hours should not be affected unless their payroll system fails to include extras such as overtime or on public holidays.

How much money is involved?

Inspectors say eight employers since 2012 have underpaid holiday pay by about $34 million, including $30 million for police. The shortfall averaged between $70 and $1800.

What's being done about it?

Inspectors have been tracking the issue since a major inquiry in 2012 and plan more "targeted" probes. Five of the 55 inspectors are focusing on Holidays Act issues, and all inspectors look out for them. Council of Trade Unions president Richard Wagstaff has asked Workplace Relations Minister Michael Woodhouse to convene a group from business and unions to tackle the issue. Mike Treen of Unite Union says payroll providers should be included. Business NZ chief executive Kirk Hope wants holiday pay based on hours worked, not weeks, because many now have irregular hours.

What should I do if I think I may have been underpaid?

Mr Wagstaff advises workers to wait and see if the Government acts. If it doesn't, workers should contact their unions. Mr Mason says workers should talk to their managers before ringing the labour inspectors on 0800 209020.

Holiday pay guidelines are online at here.