New Zealand Update: Holidays Act Review

The Government has accepted the Holidays Act Taskforce’s 22 recommendations. While the recommendations could resolve a number of thorny issues in the current Holidays Act, new issues will inevitably be created.

Draft legislation is not expected until early 2022. The most significant changes in the recommendations are:

New Calculations for Leave Payments

Payment for annual holidays will now be based on the greater of “Ordinary Leave Pay” (OLP), Average Weekly Pay for the last 13 weeks, or Average Weekly Pay for the last 52 weeks. OLP is a new calculation replacing the current Relevant Daily Pay and Ordinary Weekly Pay calculations. OLP includes the base rate for any hours worked in the relevant period, plus pay for scheduled overtime, allowances, incentives, or commission payments that would have been received had the employee worked in the relevant period. Family violence leave, bereavement leave, alternative holidays, public holidays, and sick leave (FBAPS) pay would be based on the greater of OLP and Average Daily Pay.

The recommendations would also provide a new definition of Gross Earnings being “…all cash payments received, except direct reimbursements for costs incurred.” This would include bonus and incentive payments, including those which many employers have historically thought to be excluded from Gross Earnings calculations on the basis that these payments are discretionary.

New Calculations for Leave Entitlements

An employee’s annual holiday entitlement would still be dealt with in weeks or in portions of weeks. The recommendations provide detailed steps to determine the amount of annual holiday entitlement to deduct where an employee with variable working hours takes annual holidays. The steps involve determining the employee’s average hours worked over the past 13 weeks on corresponding days.

FBAPS entitlements would be dealt with in days, but sick leave and family violence leave could be taken in units as small as quarter days. FBAPS can only be taken on an “Otherwise Working Day”. The recommendations provide a prescriptive test to determine if any day is an Otherwise Working Day for an employee: if the employee was expected to work according to a previously agreed work pattern, or if the employee worked on at least 50% of the corresponding day in the past four or 13 weeks. While these aspects are somewhat convoluted, they do provide greater certainty than currently exits.

Ability to Take Annual Holiday in Advance

The recommendations provide that employees should have the “ability” to take annual holiday in their first 12 months of employment in advance of their entitlement arising. The “ability” would arise on a pro-rata basis throughout the first 12 months. Currently, employees are not entitled to take annual holidays until they have continually worked for 12 months (although many employees are allowed by their employers to take it in advance).

This “ability” to take annual holiday in advance would not be an entitlement, but employers would be required to consider requests for annual holiday in advance in the same manner as requests for annual holidays that the employee is entitled to, i.e., the employer could not unreasonably withhold consent. With that in mind, the practical difference between having an “ability” to take annual holiday in advance and an “entitlement” to take annual holidays is not clear.

This recommendation does not entirely resolve the issue it seeks to address. In our experience, very few employers prevent employees from taking annual holiday in advance in their first 12 months. There is also no “ability” to take annual holiday in advance after an employee’s first 12 months. This is likely to be a more common issue where employees take more annual holiday in their first 12 months, in reliance on their “ability” to do so, and so enter their second year of employment with a depleted annual holiday balance. The real root of these issues is the fact that annual holiday entitlements under the Holidays Act 2003 are granted in 4 week ‘chunks’ every 12 months rather than accruing slowly over time. These changes continue to ignore the fact that most, if not all employers, actually accrue annual holiday entitlements during the year, often in hours or days depending on their payroll system.

New Leave Eligibility  

The recommendations propose that eligible employees be entitled to bereavement and family violence leave from the first day of employment. The class of people whose deaths trigger bereavement leave would also be extended. Eligible employees would be entitled to one day of sick leave from their first day of employment, with an additional day of entitlement arising each month until the maximum level of entitlement is reached, which has recently been increased to 10 days each year. This method of ‘accrual’ is inconsistent with the approach which has been maintained in relation to annual holidays as noted above.

Eligible employees are those with “agreed hours and an expectation of continuous employment” (these terms are defined, and employers must reconsider the eligibility of employees not considered eligible every quarter) or any employee after six months of continuous employment.

Pay-As-You-Go (PAYG) holiday pay changes

Currently, parties may agree that employees who work on an intermittent or irregular basis or who have a fixed term agreement of less than 12 months may be paid an additional 8% (or more) in lieu of paid annual holiday. The recommendations would remove the ability to agree to PAYG for the fixed term employees and introduce a four-part test to determine if an employee works on an intermittent or irregular basis. The four-part test requires: 1) no minimum hours and no expectation of ongoing employment, 2) no obligation to provide or accept work, 3) no underlying pattern of work, and 4) periods, of at least a week, without work. The four-part test must be repeated every quarter for PAYG employees.

Other changes of note

The requirement to pay employees 8% of their gross earnings and reset their annual holiday anniversary date when affected by a closedown period in their first 12 months of employment, would be removed.

Employers would be required to provide employees with pay slips in a specified format for each pay period.

Following the sale or transfer of a business, employees would have the choice to have their leave entitlement transferred to the new employer or paid out by their old employer and re-set with their new employer. It is currently a requirement to pay out leave entitlements. However, it is common practice to seek employee consent to transfer these entitlements to their new employer. This recommendation would legitimise this practice.

An employer’s ability to require employees to remain available to accept work under an availability provision would be suspended from the end of the work period before leave to the beginning of the work period following leave. Any days worked under an availability provision would automatically be an Otherwise Working Day, and entitlement to sick, bereavement, and family violence leave would apply to those days.

Overall, it is difficult to see at this stage how much complexity has been removed from the Holidays Act as it currently exists. In fact, there may be further complex definitions and tests for employers to tackle. The “proof” will be in the legislative “pudding” once it is drafted. This area seems destined to remain complex for all parties.

Quigg Partners, New Zealand, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact newzealand@transatlanticlaw.com

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