Holidays Act Recommendations
By: Ruthi Bommoju
The Holidays Act 2003 (“the Act”) is well known for its complexities, resulting in costly mistakes for businesses and significant underpayments to employees.
The Holidays Act Taskforce (“Taskforce”) was created in 2018 to review the Act and make recommendations for its simplification, following a joint request from Business NZ and the Council of Trade Unions, which was welcomed by many and long overdue.
The Taskforce has made 22 key recommendations which have been accepted by the Government. New Legislation is anticipated to be introduced in early 2022 with changes still needing to go through the full parliamentary process. A brief summary of some of the main recommendations are outlined below.
Taking Annual Leave During the First 12 Months
Under the current Act, employees are entitled to four weeks of annual leave after they have worked for an employer for 12 continuous months. Employees are not entitled to take leave in advance of their entitlement under the Act, but can at their employer’s discretion.
The Taskforce has recommended that employees still become entitled to four weeks’ holidays after 12 months continuous employment, but have the ability to take leave in advance of an entitlement on a pro-rata basis (e.g., can take two weeks’ leave after working for six months) rather than wait 12 months before being able to take annual leave.
Payment of Annual Holidays
Under the Act, annual holidays are paid at the higher rate of:
- An employee’s ‘ordinary weekly pay’ (OWP) under section 8(1) of the Act which is basically the amount of pay an employee receives under their employment agreement for an ordinary working week, or where that is not possible, then the employee’s gross earnings over the previous four weeks before the calculation is made under section 8(2) of the Act; or
- An employee’s ‘average weekly earnings’ (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday under section 21 of the Act.
An employer must perform each of the calculations for OWP and AWE and pay the rate that is the higher, i.e., “greater of” in respect of an employee’s annual holidays.
Instead, the Taskforce has recommended annual holidays being paid at the greater of:
- Ordinary Leave Pay, which would include all payments the employee would have received if the employee had been at work for the period in question, including base rate for any hours that would have been worked, pay for any scheduled overtime, allowance, incentive and commission payments; or
- Average weekly earnings over the last 13 weeks; or
- Average weekly earnings over the last 52 weeks.
The ambiguity involving which payments are included in ‘gross earnings’ under section 14 of the Act has resulted in wide confusion and misinterpretation in terms of employee entitlements. For example, the Act creates uncertainties for employers as it is not always clear whether payments such as discretionary payments, cashed up holidays and redundancy payments should be included in ‘gross earnings’, and this is one of the most common issues that features in litigation related to the Act.
The Taskforce has recommended ‘gross earnings’ be defined as including “all cash payments received, except direct reimbursements for costs incurred.” The implication of this is that this new definition of gross earnings will be significantly wider and will basically capture any payments made to an employee (including but not limited to entirely discretionary payments) other than genuine reimbursement payments.
Annual holidays and Parental Leave
As mentioned above, payment for annual holidays is calculated at the greater of an employee’s OWP or AWE over the previous 12 months. However, for employees that have been on parental leave, section 42(2) of the Parental Leave and Employment Protection Act 1987 includes an ‘override’ to this. This means that if an employee becomes entitled to annual holidays while they are on parental leave, or in the 12 months following their return from any period of parental leave (or in the ‘period of preference’ in obtaining employment), then their annual holiday entitlement may be paid only at the rate of the employee’s AWE for the 12 months immediately before the end of the last pay period before the annual holiday is taken, i.e. a potentially much lower value depending on how soon an employee takes their annual holidays following their return from parental leave.
Family Violence, Bereavement Leave, Alternative Holidays, Public holidays & Sick Leave (FBAPS Leave)
Payment for FBAPS
Currently, if an employee is entitled to any of the FBAPS payments, the employee will need to be paid his/her ‘relevant daily pay’ (RDP) per section 9 of the Act, or, if it is not possible to calculate this or the employee’s RDP varies within the applicable pay period, then employer can use their ‘average daily pay’ (ADP) over the last 52 weeks per section 9A of the Act.
The Taskforce recommendation is that payment for FBAPS should be calculated at the greater of:
- The calculation of Ordinary Leave Pay (as above); or
- Average daily pay over the last 13 weeks.
Day One Eligibility
Under the Act, employees are eligible for sick, bereavement and family violence leave after six months’ continuous employment or if they meet an ‘hours test’ after six months. The Taskforce recommendation is that eligible employees will be able to take bereavement leave and family violence leave from their commencement date of employment. The recommendation also involves providing eligible employees with an entitlement to one day of sick leave from their first day of employment, with an additional day per month of employment until the full five-day entitlement is reached. It is likely this may change as legislation to increase sick leave from five to ten days per year has already passed with changes in this respect coming to effect on 24 July 2021.
Extension of Scope of Bereavement Leave
The Taskforce recommendation is that the list of people for who bereavement leave for 3 days bereavement leave can be taken for will be expanded to cover a wider scope of family members encompassing cultural family groups and modern family structures.
Otherwise Working Day
The Taskforce has recommended a new formula to determine whether a day should be an Otherwise Working Day for an employee for FBAPS purposes. The Taskforce has recommended that a day should be an Otherwise Working Day for an employee if:
- The employee was expected to work on the day in question according to a work pattern that has previously been agreed between the employee and employer (for example, a regular shift pattern that is set out in an employment agreement); or
- The employee has worked on 50% or more of the corresponding days in either the previous 4 weeks or the previous 13 weeks.
Pay- As-You-Go Holiday Pay
There is ambiguity as to what constitutes ‘intermittent or irregular’ work in relation to employees being eligible to receive 8% annual holiday pay with their pay under the Act. The Taskforce recommendation includes providing a clearer definition of what ‘intermittent or irregular’ means. The recommendations also involve removing the ability to pay-as-you-go for employees on fixed-term agreements for less than 12 months as currently allowed under section 28 of the Act.
The Taskforce recommendation in respect of this issue involves the obligation on the employer to provide employees with payslips in every pay period, so employees know what their used and remaining leave entitlements are, and how these were calculated. Providing pay slips would be mandatory under the Act.
Sale and Transfer of a Business
The Taskforce recommendations allow employees to have a choice about whether to transfer all of their leave entitlements to the new employer, or have them paid out and reset where there is a sale of a business.
The above is a brief general summary of some of the recommendations which will still need to go through the parliamentary process once legislation is introduced in early 2022. It is vital that businesses keep up to date with specific details published by the Taskforce and keep well informed of updated legislation as and when information becomes available. If you have any questions, please contact EMA Legal on 09 367 0994.