A Nishan Sahib is saffron or navy blue cloth, triangular, mounted on a steel clad pole topped with a khanda emblem finial, and the Sikh Rehat Maryada, the code of conduct many Sikh institutions follow, sets out the basic color and form, though the saffron versus blue question has itself been a live point of community discussion rather than a settled matter everyone agrees on.
Not simply swapped, but ceremonially replaced
Replacing the flag is not a quick maintenance task, it is its own seva, Nishan Sahib Sewa, commonly carried out around Vaisakhi, involving washing the pole and applying fresh cloth in careful layers rather than simply pulling down a worn flag and running up a new one. Sevadars perform this work, and in some gurdwaras a specific family is given the honor of leading it for that year.
What happens to the old cloth
The retired cloth is not treated as ordinary worn fabric to be thrown out, pieces are commonly distributed to devotees as blessed keepsakes or put to other ritual use around the gurdwara, continuing the pattern seen elsewhere in Sikh practice of finding a respectful next use for a textile that has served its purpose rather than discarding it outright.