The Government has just released the final report of the Holidays Act Taskforce. The report makes 28 recommendations for change and the Government has accepted them all, intending to introduce amendments to the Holidays Act in 2022.
Until we see a draft Bill it is hard to be definitive about what the changes will be. We sincerely hope the problems in the Act will be fixed, but we fear that in trying to do so, the Government may create new headaches. Some of the recommendations retain or appear to add in further complexity. Nevertheless, there is also a range of sensible suggestions for improvement. As always the devil will be in the detail.
Following is a summary of some key proposed changes:
Currently, annual leave is paid at the higher of average weekly earnings over the previous 12 months and ordinary weekly pay (what the employee receives for an ordinary working week). Where it is not possible to determine ordinary weekly pay, an alternative formula is used: the employee’s average earnings over the past 4 weeks.
The Taskforce recommends annual leave is paid at the highest of three separate calculations: average weekly earnings over the previous 52 weeks, average weekly earnings over the previous 13 weeks and “ordinary leave pay”. Ordinary leave pay is a new concept replacing ordinary weekly pay, and is what the employee would have earned if they had been at work on the day(s) in question.
The upshot is that on each occasion when an employee takes annual leave, three different calculations will need to be made. It is difficult to see how an additional required calculation is going to reduce complexity or errors.
Currently, the definition of gross earnings does not include discretionary payments. This has led to a lack of clarity around which payments are truly discretionary, and has particularly been an issue with bonus or incentive arrangements. The Taskforce recommends that all cash payments made to employees (except reimbursing ones) are included in gross earnings. This will remove any lingering confusion, but may be at overall greater cost for employers.
Leave in advance
Currently, employees have to rely on their employer to agree to them taking annual leave in advance. The Taskforce recommends all employees being eligible to take leave on a pro-rata basis from day 1. This strikes us as fair, but also enables an employer to manage leave accruals sensibly.
Pay-as-you-go holiday pay
The Taskforce proposes a requirement for employers to review PAYG employees every 13 weeks to check eligibility. The proposals would also remove the ability to pay PAYG for employees on fixed-term contracts of less than 12 months.
Currently, leave pay for sick days, public holidays, alternative holidays, bereavement and family violence is paid at relevant daily pay (what the employee would otherwise have earned for the day in question) or average daily pay over the last 52 weeks if it is not possible to calculate relevant daily pay.
The Taskforce recommends relevant daily pay is replaced by ordinary leave pay, and the average daily pay calculation be changed from a 52 weeks to 13 weeks divisor. However it also recommends that leave pay be at the greater of these 2 calculations.
Again, an additional required calculation is going to lead to more, not less, complexity.
Currently, employees must wait six months before they are eligible for sick, bereavement and family violence leave. The Taskforce recommends bereavement and family violence leave be available from the first day of employment, and that sick leave accrues from day one on the basis of one day per month until the five-day entitlement is reached. The Taskforce also recommends extensions to bereavement leave to cover additional family relationships.
Determining an otherwise working day
The Taskforce recommends dealing with the current ambiguity by a formula where if the employee has worked on 50% or more of the corresponding days in either the previous 4 weeks or previous 13 weeks, that day is deemed an otherwise working day. This will provide clarity for employers and employees.
Sale and transfer of a business
The Taskforce recommends that on the sale and transfer of a business, employees should have a choice about whether to transfer all of their leave entitlements to the new employer or have them paid out and reset. Parties negotiating the sale of a business would then need to deal with this additional factor when negotiating the terms of any business sale. This will match what commonly occurs in practice.
At a fundamental level, we are disappointed the Taskforce rejected the concept of an “hours” based system for calculations, rather than the current weeks, which has caused enormous compliance difficulties. If there was one obvious place to start it was here, and we think this could have been the basis for a simpler piece of legislation.
We are also disappointed the Taskforce is recommending more – not fewer – calculations. We think that is a recipe for more – not less – confusion.
The Taskforce report can be found here: https://www.mbie.govt.nz/business-and-employment/employment-and-skills/employment-legislation-reviews/holidays-act-review/
We will keep you updated about the progress of this important legislation, and encourage you to consider making a submission to the Select Committee at the appropriate time to ensure the Select Committee hears the views of employers who will need to administer the Act in their workplaces. We would be happy to provide advice and assistance in this regard.