Changes to the Holidays Act: What it means for employers

In May 2018, the NZ government announced the creation of a tripartite taskforce composed of representatives from employers, workers and the government to offer recommendations on simplifying the Holidays Act 2003. The need for change to the legislation was spurred by the evolution of the labour market, as well as the need to address the complications of different payrate calculations across a variety of leave entitlements.

On 23 February 2021, Workplace Relations and Safety Minister Michael Wood announced that the government had accepted all the recommendations made by the taskforce, and the amended legislation would be released in early 2022.

K3 Legal associate Cameron Fraser summarises the biggest announced changes as follows:

• from an employee’s first day of work they will begin accruing sick leave and be entitled to family violence leave and bereavement leave, instead of after six months under the current law
• bereavement leave will be expanded so three days’ leave will be available for more types of family members, instead of just close relations under current law
• persons returning from parental leave will be paid at their full rate for annual holidays, instead of a reduced rate based on their average earnings under current law, which would have likely included an unpaid period of leave
• payslips will become mandatory for each pay period, detailing used and remaining leave entitlements and how these are calculated
• employees will be able to take annual leave in advance on a pro-rata basis, where is currently at employer discretion within the first 12 months under current law
• It will provide clearer guidance on the situations which employees can legitimately receive pay-as-you-go holiday pay at 8% with their regular pay, with employers being forced to review arrangements every 13 weeks
• if an employer sells their business, employees will be given the option to be paid out all or some of their annual leave entitlements, or ha the leave transferred to the new employer

The amendments will also alter the way leave entitlements and payments are calculated with the goal of simplifying and clarifying the process. For instance, the “ordinary weekly pay” and “relevant daily pay” concepts will be replaced with “ordinary leave pay” – how much an employee would have earned on the leave day in question.

“This concept is to be used in calculating pay for annual leave, public holidays, sick leave, bereavement leave, and family violence leave,” Fraser said.

For the process of calculating payment for annual leave, the term “gross earnings” has been defined as including all cash payments employees receive, except when the payments apply to direct reimbursements for incurred costs.

The changes, Fraser pointed out, may improve the certainty of calculating leave entitlements for employees that work on a variable schedule, and will also facilitate the deduction of sick and family leave in part-days.

Leave pay calculation

Nonetheless, K3 Consulting specialist HR consultant Karyn Gould said that there are aspects of the legislation that can add to business costs and confuse employers.

Annual leave will be paid based on whichever of the following three factors has the highest value: ordinary leave pay, average weekly earnings over the last 13 weeks or average weekly earnings over last 52 weeks. “All earnings” refers to all cash payments received with the exception of direct reimbursements for costs incurred.

“This means bonuses will be mandatory to include in calculations – there will be no more ‘discretionary’ remuneration component exclusions,” Gould said. “This could significantly raise the amount paid for annual leave and/or make businesses reconsider if they pay bonuses.”

In addition, some leave types will still be calculated in weeks, while others are calculated in days – thus, the process remains complex for employers.

“Annual leave is weeks – employees receive their ‘normal’ week in annual leave, so for example, if they only work 20 hours per week, they receive a week of leave and are paid for that week on that basis,” Gould explained. “Sick leave is in days – employees all receive the same amount of days even though their hours per week may differ significantly.”

If an employee works 3 eight-hour days, for instance, they will be entitled to 5 days of sick leave – “proportionately more” than another employee who works 5 eight-hour days but still only receives the same number of sick leave days, she pointed out.

With the introduction of the Holidays Amendment Bill, eligible employees will also soon be entitled to 10 days of sick leave per year.

Employment agreement overhaul

Moreover, Gould said that the implementation of the amended Holidays Act means employers will need to either generate new employment agreement templates for new hires and update communication for existing employees, even if the new legislation will overrule any lesser contractual provisions. Confusion could arise where employment agreements differ from legislation.

“In addition, if employers already provide additional entitlements to current legislation, there will need to reassess how their employment agreements are worded, and what obligations that wording now presents. For example, an employer who offers a fifth week of annual leave – over and above legislative entitlements – may look to implement a different calculation for this payment.” Gould said.

Advice should be based on what type of change process is legally required.

In accordance with the changes to the Holidays Act, employers may also be required to introduce new processes, such as the issuance of payslips. They will also need to plan for changes with either internal or outsourced payroll providers.

Fraser echoed Gould’s opinion regarding the need for significant changes to a business’ employment agreement templates.

“Employers would definitely be wise to overhaul their employment agreement templates, given under the changes, the assessment of what constitutes a ‘week’ for the annual leave entitlement is explicitly tied to the hours in the employment agreement or relevant roster,” Fraser said.

He added that in theory, while the heightened restrictions related to pay-as-you-go employees would tackle the issue of employers who misuse casual employment, he was less convinced of whether this would be a sea-change in practice.

The Holiday Amendments Bill will come into effect two months after its passage into law.