Changes on the way for the Holidays Act

Employers and employees alike have long been grappling with the Holidays Act 2003 ("Act") due to its complexity. Difficulties with compliance has resulted in employees receiving incorrect payments, being unaware of their statutory entitlements and employers owing significant amounts of historical underpayments. It is no surprise the Labour Government's announcement to review the Act was welcomed by many.

The Government established the Holidays Act Taskforce to identify challenging areas of the Act and make recommendations as to how these can be alleviated. In October 2019, the Taskforce released their final report. The Taskforce made 22 recommendations, all of which have been accepted by the Government and are expected to come into effect in 2022. The key recommendations are set out below.

Key recommendations include:

Family Violence Leave, Bereavement Leave and Sick Leave

• Eligible employees will be entitled to bereavement leave and family violence leave from the first day of employment. The list of people who 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.

• Sick leave will accrue from the first day of employment with an additional day per month until the entitlement of five days is reached.

• Sick leave and family violence leave for units of less than a day will be available to employees, at a minimum of ¼ of a day.

• Family violence leave, bereavement leave, alternative holidays, public holidays and sick leave ("FBAPS") will be calculated at the greater of Ordinary Leave Pay or Average Daily Pay.

Paid Parental Leave

• The parental leave override will be removed. This means employees returning from parental leave will have their accrued annual leave paid at the same rate as other annual leave.

Pay-as-you-go for Fixed Term

• Employers will no longer have the ability to pay employees annual leave with their regular wage payments if the employee is on a fixed term contract of less than 12 months.

Definition of Gross Earnings

• The definition of "gross earnings" for leave calculations will include 'all cash payments received, except direct reimbursements for costs incurred'. This new definition will include all bonuses.

Sale and Transfer of a Business

• On the sale and transfer of a business, employees of the business will be able to choose whether to transfer all of their leave entitlements to the new employer or have them paid out and reset.

Closedown Provisions

• The closedown provisions will need to be amended in employment agreements  to allow greater certainty for employers.

• A significant amendment is the removal of the requirement that holidays be paid out at 8% of gross earnings and the employee's anniversary be reset.  It should be noted that it will be possible for employee anniversary dates to be reset through agreement.

Pay Slips

• Employers will be required to provide pay slips to employees in every pay period.

Annual Holidays

• The mode of calculating payment for annual holidays will be amended.

• A new "prescriptive process" provides that the payments will be paid on the greater of Ordinary Leave Pay ("OLP") or Average Weekly Pay earnings for the last 4, 13 or 52 weeks, whichever is the greater.

        OLP is a new calculation that replaces the existing Relevant Daily Pay and Ordinary Weekly Pay calculations.  OLP
        includes all payments the employee would have received if the employee had been at work for the period in question,
        including the base rate for hours that would have been worked, pay for any scheduled overtime, allowances, and
        incentive or commission payments that the employee would have received had they worked for the relevant period.

• Employees will have the ability to take annual holidays in their first 12 months of employment up to the amount they would have been eligible for, on a pro rata basis.

Implementing these changes will require significant preparation and time to adjust for employers. Our employment team is here to answer any queries on these changes and guide you through the process of aligning your business with these proposed recommendations.

Reminder:  The adult minimum wage will increase from $18.90 to $20.00 per hour and the starting-out training minimum wage will increase from $15.12 to $16.00 per hour on 1 April 2021.

Please direct any enquiries to:

Melissa Johnston (Partner) on (09) 306 6729 (mjohnston@mcveaghfleming.co.nz)

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