It's well established that the Holidays Act has been a headache for businesses for years. Too complex, ambiguous, and easy to get wrong even when you're trying to do the right thing.
The good news is that reform is now actively underway. The Government is developing new legislation to replace the Holidays Act 2003, with the goal of providing a clearer, more workable set of rules for holidays and leave entitlements. The existing Act still applies until the new legislation is passed, but the acknowledgement that the current rules are genuinely difficult to apply is long overdue.
In the meantime, the ambiguity hasn't gone away, and neither has the temptation to assume that your payroll software is handling it all for you.
The problem with payroll software
To build payroll software, you first need to interpret the legislation, which, as we've established, is ambiguous even for payroll specialists.
You then need to account for the full range of employment situations and configure calculations that will work across all of them. Then you need to make the settings flexible enough for different users to apply in different contexts.
My mind boggles at the complexity of this, and hats off to the developers who try. But what it highlights is that these systems are built around a general idea of what an employment situation might look like.
The results depend entirely on the settings and data that go in – and if either of those is wrong, problems can arise.
Which makes it all the more surprising when payroll software companies use phrases like "faff-free payroll," "seriously compliant," and "we make it simple, clear and compliant."
You have to wonder what they know that most employers and payroll administrators don't.
The truth is, if it sounds too good to be true, it usually is.
Common mistakes businesses make with payroll software
The mistake I see most often (even in businesses using the more expensive software with all the bells and whistles) is that they don't really understand how their system works or how it needs to be configured for their specific employment situation.
Take annual leave calculations as an example:
Some payroll software gives you the option to use a four-week average when calculating annual leave payments, which makes sense for employees whose weekly pay varies.
But I regularly see this setting applied to employees with regular, predictable work patterns. If those employees have received any additional payments in the past 4 weeks – overtime, a bonus, an incentive payment – the four-week average can result in an overpayment, or worse, non-compliance.
How to use payroll software correctly
To avoid these problems, you need to understand both your employees' employment agreements and the underlying legislation, so you know what to look for when configuring your system.
It's also worth remembering that payroll software is a tool, not a guarantee. There will always be situations that require manual intervention or adjustment, because New Zealand payroll legislation is complex and I haven't yet come across a system that automatically handles every scenario correctly.
Knowing when your software needs a helping hand – for example, how to handle public holiday entitlements after an employee's last day – is part of what keeps you compliant.
If you'd like to go deeper on the most common payroll mistakes and what to do about them, my blog 5 payroll mistakes business owners should watch out for is a good place to start.
Or if you'd like a fresh set of eyes on how your software is set up, feel free to get in touch.
Updated April 2026 | Originally published March 2022
About the author
Karyn Campbell is a New Zealand payroll consultant and founder of Payroll Consult. With 5+ years running her own consultancy and a background in payroll software – including roles across client support, onboarding, and partnership management at a leading NZ payroll provider – Karyn brings a rare combination of technical knowledge and real-world compliance experience. She works with business owners, bookkeepers, and payroll teams across New Zealand, specialising in payroll audits, system reviews, and fixing complex payroll issues for teams that don’t work a typical 9-5.
