The government has announced a taskforce to tackle a payroll mess which has left potentially hundreds of thousands of workers out of pocket.

Photo: VNP / Phil Smith

In recent years, it has emerged many employers underpaid their staff due to mistakes calculating holiday pay under the complicated Holidays Act.

In 2016, officials estimated up to 760,000 workers could be affected at a total cost which could top $2 billion.

Police, District Health Boards and the Ministry for Business, Innovation and Employment were among those which have been caught up in the problem.

Workplace Relations Minister Iain Lees-Galloway said the taskforce would look at ways to simplify the Holidays Act.

"There's been enormous change in our labour market over the past fifteen years and it's clear we need to look at the Holidays Act with a fresh pair of eyes and ensure it is fit for modern workplaces and new working arrangements," Mr Lees-Galloway said.

The current law was proving "difficult and costly" for employers to follow and workers were missing out on what they were owed, he said.

"The legislation needs to be straightforward and simple to implement, and deliver fair rest and entitlements for workers," Mr Lees-Galloway said.

The problems chiefly stem from the different ways an employer can calculate holiday pay.

Workers are entitled to whichever calculation is higher - their ordinary weekly pay or an average over 12 months.

That can be difficult to work out if an employee worked variable hours or received a commission or one-off bonus payment.

Both Business NZ and the Council of Trade Unions had approached the government to help tackle the "vexed and complex set of issues", Mr Lees-Galloway said.

The group, chaired by Victoria University law professor Gordon Anderson, would include representatives from business, unions and government.

It is expected to report back in mid-2019.

The taskforce would consult widely and work closely with technical experts to test possible options, Mr Lees-Galloway said.

The former government also considered changing the law, but couldn't find a way to simplify it without also reducing workers' entitlements.