Even the financial markets watchdog cannot calculate holiday pay properly

The Financial Markets Authority spends its days telling listed companies, fund managers and financial advisers to get their systems, disclosures and controls right. Now it has admitted its own holiday pay method breached employment law.

The irony is obvious. The more useful lesson for business owners is less so. This is not a story about a careless regulator. It is a story about a law so badly designed that a well-resourced, compliance-obsessed public agency still fell foul of it. The detail of the FMA’s liability, including how many staff are affected and what it will cost, is not yet public. But the pattern it joins is extensively documented, and it should worry every employer running a payroll.

A club nobody wants to join

The FMA is in illustrious company. MBIE, the ministry that actually administers the Holidays Act, has itself been found in breach, alongside NZ Police and Te Whatu Ora, RNZ reported in 2024. Health is the worst case. By 2022, the health system’s backpay bill had ballooned to almost $2 billion, owed to roughly 270,000 people, despite district health boards knowing since 2013 that their payroll systems broke the law.

This has been obvious for a decade. Back in 2016, MBIE estimated national underpayment liability at between $292 million and $2.2 billion. That same year, Labour Inspectorate investigations found 19 of 20 employers investigated for Holidays Act issues since 2012 had breached the law. Nineteen of twenty is not a rogue-employer problem. It is a legislative failure.

The problem got worse, not better

The government’s own 2025 Regulatory Impact Statement showed confirmed Labour Inspectorate breaches rising an average of 45% a year, from 1,055 cases in 2021/22 to 2,013 in 2023/24. MBIE’s service centre fielded 7,146 Holidays Act calls in 2024 alone. Accommodation and food services accounted for 53.4% of confirmed breaches, but construction and the primary sector featured heavily too.

The same document recorded that Health NZ had paid $308.2 million in remediation against an estimated total liability of $2.2 billion. Taxpayers are funding that gap.

Even MBIE conceded the point. In 2022, Chris Hubscher, then-manager of employment standards policy at the ministry, said “the lack of certainty and prescription in the Holidays Act” was a significant factor in employers getting it wrong. When the law’s own custodian blames the law, employers are entitled to feel aggrieved.

Why smart organisations still get caught

The core flaw has never changed. In 2022, David Jenkins, then-chief executive of the New Zealand Payroll Practitioners Association, put it bluntly: the Act was written “as though everyone works 40 hours a week, five days a week”, and falls apart once variable hours enter the picture. Tax, he said, is a breeze by comparison.

Modern workplaces are full of part-timers, rosters, overtime, allowances and shifting arrangements. Every one of them creates a calculation trap. Sophisticated payroll software doesn’t save you if the configuration misreads a relevant daily pay or average weekly earnings rule.

Then comes the bill. Under Labour Inspectorate remediation guidance, employers must pay arrears going back at least six years, regardless of amount, plus “wash up” arrears accrued while the fix is being implemented. A small methodological error compounds quietly for years before anyone notices.

Relief is coming, eventually

The good news is that the fix is finally law. The Employment Leave Act 2026 received Royal assent on 6 August, moving to an hours-based model that BusinessNZ had pushed for over a decade. Deloitte says the new regime will simplify how leave is earned, taken and paid, so employers actually know what they need to do.

Katherine Rich, BusinessNZ’s chief executive at the time, said in September 2025 that it was “hard to overstate the difficulties” caused by the current Act, with numerous large businesses and government departments forced to rectify millions in underpayments. Credit where due, this government delivered the rewrite that successive governments promised and shelved.

The catch is timing. The new Act doesn’t take effect until 6 August 2028. For two more years, employers remain bound by the Holidays Act 2003, a law everyone from Treasury to the payroll profession agrees is broken.

What employers should do now

Don’t wait for 2028. The six-year lookback means today’s error is tomorrow’s liability, and a transition to a new regime is exactly when historic mistakes surface. Audit how your payroll handles variable-hours staff, relevant daily pay and average weekly earnings. Ask your provider to show its workings, not just assure you it’s compliant.

The FMA presumably thought its payroll was fine too. That is the whole point. If the watchdog whose job is enforcing compliance can get caught, confidence is not a control. Evidence is.

Sources

• Stuff: New Zealand’s financial markets watchdog admits holiday pay method breached employment law (2026-09-25)
• RNZ: A promise to overhaul the Holidays Act, again (2024-03-20)
• RNZ: Holidays Act fix – Cost of backpay for health workers balloons to $2b (2022-11-17)
• RNZ: Holiday pay errors could top $2b (2016-06-02)
• NZ Herald: Holiday pay – Unions eye ‘hundreds of millions’ (2016-04-01)
• Regulatory Impact Statement: Holidays Act Reform (2025-07-07)
• ADP Rethink Q: Fixing New Zealand’s holiday pay problems (2022-06-15)
• Employment NZ: Guidance for employers completing Holidays Act 2003 remediation calculations (2020-10)
• Deloitte: A new era for leave entitlements in New Zealand (2026-08-06)
• Scoop: Holidays Act Difficulties To Be Remedied (2025-09-23)