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Holidays Act changes – a chance lost!

The Minister for Workplace Relations released the Final Report of the Holidays Act Taskforce and announced that all of the recommendations in the Report had been accepted by the Government.

Holidays Act Overhaul 2The Taskforce said that it had been guided by some key principles; certainty, transparency and practicality. Sadly, the recommendations do little to address the key holiday pay issues faced by many New Zealand businesses. It should have focussed on providing a simplified accrual and calculation methodology for leave to reduce complexity and cost.

Some of the key recommendations 

  1. To retain the current methodology of providing and calculating annual leave in weeks or portions of week. A better approach would be accrue and calculate leave entitlements in the time unit that best suits the workplace (whether hours, days or weeks) to ensure the Act is flexible. Retaining the current complex methodology will continue to provide headaches to employers. Even government agencies such as the Police and MBIE (the home of our Labour Inspectorate) have had problems calculating annual leave for their employees.

  2. Adding a further calculation based on a shorter period of time. The Taskforce has recommended that annual holiday payments now be calculated by applying the higher of; ‘ordinary leave pay’, ‘average weekly pay for the last four or 13 weeks’ and ‘average weekly pay for the last 52 weeks’. The Minister has decided that the short-run average weekly calculation should be based on a 13-week formula. Rather than simplify the methodology, it creates further complexity.

  3. Widening the concept of ‘gross earnings’ to include all bonus payments, including those that are entirely discretionary. ‘Gross earnings’ will now include “all cash payments received, except direct reimbursements for costs incurred.”

  4. Employees will have a choice about whether to transfer all of their leave entitlements or have them paid out and reset on the sale and transfer of a business. This recommendation is sensible and should be welcomed by employers and employees as the current obligation to pay out all annual holiday entitlements upon the transfer of a business is a significant issue for vendors and purchasers. It can also disadvantage employees when they have to start accruing leave again from scratch if the new owner of the business takes on some or all the employees.

  5. Providing a prescriptive process to calculate how much leave needs to be taken for an employee to have a period away from work when it is not clear what a ‘week’ may be or what may ‘otherwise be a working day’. It has been decided to use a 13 week period for this assessment, which means another formula for employers/payroll providers to apply.

  6. Closedown provisions amended including removing the requirement that holidays are paid out at 8 per cent and an employee’s anniversary date is reset.

Other recommendations

  1. Expressly allowing employees in their first year of employment to take annual holidays in advance on a pro rata basis. Currently employees can only take annual leave in advance of their anniversary date by agreement with their employer.

  2. Providing employees with an entitlement to bereavement leave and family violence leave from their first day of employment, instead of becoming entitled to it after six months.

  3. Providing employees with an entitlement to one day of sick leave from their first day of employment, with an additional day accrued each month until the full entitlement of five days is reached after four months.

  4. Expansion of bereavement leave to cover more family members, including cultural family groups and more modern family structures.

  5. Expressly allowing employees to take sick leave and family violence leave in units of less than a day, at a minimum of a quarter of a day.

  6. Ensuring that parents returning from parental leave are paid at the same rate for any annual leave they became entitled to while on parental leave as they would normally be entitled to.

  7. Removing the ability to use PAYG for employees on fixed term contracts of less than 12 months, instead providing for a more detailed definition for when PAYG may be used by employees because the work pattern is “intermittent and irregular” (usually casual employees).

Conclusion

While the proposed changes will still need to proceed through the legislative process, the Government has a majority and the recommendations are likely to be implemented. Unfortunately, the recommendations are a chance lost to address the key holiday pay issues faced by many New Zealand businesses.