Holidays Act overhaul

Upcoming changes to the Holidays Act have been the subject of much discussion in recent weeks, as the Minister for Workplace Relations announced that all recommendations in the Holidays Act Taskforce report have been accepted by the Government.

The changes are intended to simplify the current legislation- which is a source of significant confusion for many New Zealand employers as it stands. However many of the proposed amendments don’t meet the mark in terms of simplification and, in fact, in some changes add more complexity.

Whilst some of the changes are reflective of a more modern social policy (such as returners from parental leave no longer losing out on holiday pay calculations) others will present further challenges for employers such as the inclusion of discretionary bonuses in the calculation of holiday pay.

Among the changes are:

Annual leave and FBAPS (Family Violence, Bereavement, Alternative Days, Public Holidays & Sick) leave payment:

• There will be four calculations to compare when calculating annual leave pay. Annual leave will be paid at the greater of Ordinary Leave Pay (base rate plus any scheduled overtime, allowance, commission and incentive payments) ; average weekly pay for the last four or 13 weeks; or average weekly pay for the last 52 weeks. 
• Each day of FBAPS leave will be paid at the greater of Ordinary Leave Pay or Average Daily Pay. 

Annual leave entitlement:

• Employees will be able to take annual leave in advance on a pro-rata basis. 
• Where an employment agreement, shift roster, or other documentation records an employee’s days and hours of work, this is expected to be used when determining leave entitlements and deductions. 
• Parents will be paid at their full rate for annual leave on returning from parental leave, removing the discriminatory ‘parental leave override’.
• Employers will not be able to rely on an availability clause in requiring an employee to work during a period of annual leave. 
• The definition of ‘gross earnings’ will be expanded to cover “all cash payments received, except for direct reimbursement for costs incurred”.

FBAPS leave entitlement:

• Employees will be entitled to bereavement and family violence leave from day one. They will also receive one day of sick leave on their first day, and one additional day per month until they reach their minimum entitlement.
• Sick leave and family violence leave will be available in units of less than a day (with a minimum of a quarter day).
• There will be a new test for eligibility for sick, bereavement and family violence leave (though this test is not specified).
• A new method will be introduced for determining an Otherwise Working Day in relation to FBAPS leave.
• Bereavement leave should be expanded to cover a more modern interpretation of ‘family’.
• The transfer of public holidays will be adjusted to avoid any disadvantage to employees in doing so.

Other changes:

• Closedown provisions will be clarified, and the requirement that holidays be paid out at 8% and anniversary dates be reset will be removed (unless the date is reset by agreement). 
• Where employees are transferring pursuant to a sale and purchase agreement, they will have a choice about whether to transfer their leave or have it paid out.
• Employers will have to provide pay slips to employees in every pay period. 

Changes such as the inclusion of all cash payments in gross earnings is helpful but costly for employers. Following the Metro Glass decision last year, where the employment court held that bonuses would only be considered truly discretionary where they were “gratuitous” payments, there will now be no uncertainty as to whether these should be included in holiday pay calculations. 

Providing sick/bereavement/family violence leave from the start of employment will also come at a financial cost to employers.  However, giving employees sick leave from day one of employment is a helpful step in ensuring employees can avoid pressure to come into work when feeling unwell- a hot topic in COVID-19 times. Removing the parental leave override, which currently means that annual leave is worth little to nothing on returning from parental leave, is also a positive step in supporting new parents in the workplace. 

Other recommendations will have more of an impact logistically, including the now four calculations to consider when looking at annual leave payment. 

What is clear is that between these updates and the Holidays (Increasing Sick Leave) Amendment Bill currently with the Select Committee, employment agreements, policies and payroll will be due a refresh in late 2021 to ensure ongoing compliance.

We recommend you get in touch with your legal advisor if you have any questions or concerns about these changes.