The Government is set to announce the formation of a task force to review the Holidays Act after it emerged employers had not been complying with the act on holiday pay for years, leaving thousands of workers out of pocket.

Workplace Relations Minister Iain Lees-Galloway will make an announcement tomorrow in relation to the Holidays Act. It is understood he will announce the formation of a task force to look at how the act can be simplified.

Further details of the focus of the task force will be announced tomorrow but a source said the "magnitude of the problem" had forced the Government to act.

The issues centre on the fact that there are two ways to calculate holiday pay - either on the basis of ordinary weekly pay or an employee's average weekly earnings over the past 12 months.


Employers must pay whatever gives the employee the most money.

But employers who calculate holiday pay based on an employee's contracted hours can get caught out if that person does variable hours or earns a commission or other variable pay.

The law has caught out a huge number of employers, including government agencies such as Police, Corrections and DHBs and private companies such as Spark and McDonalds.

Employers have called for changes to the act, saying they are too difficult to understand.

EY Law experts Christie Hall and Zena Razoki, in a column for the Herald, said the primary issue was a mismatch between the act and the practicalities of the New Zealand labour market.

"The act works well in calculating holiday pay and entitlements for workers with a regular working pattern. But the labour market is increasingly resourced by shift workers, casual workers and on-call workers. In addition, the use of flexible working arrangements and performance-related remuneration is growing. This mix sits poorly with the current leave calculation formulae set out in the act."

A survey of employers by Simpson Grierson late last year found 88 per cent of them wanted the Government to change and simplify the Holidays Act.

Partner Phillipa Muir said the survey supported Simpson Grierson's view that the act needed urgent review.


"It is anachronistic, overly complex and extremely difficult to apply. The overwhelming majority of our employer clients continue to rate this as their number one workplace issue for reform.

"Holiday laws are important for both employers and employees – we urge the Government to simplify the Holidays Act."