The Holidays Act has always been problematic for businesses, primarily due to the need for complex calculations, unclear leave entitlement details and inconsistencies in application. In response, the New Zealand government has proposed changes to simplify the details of the Act to hopefully prevent non-compliance and ensure employees receive fair leave entitlements.
The Holidays Act has not been reviewed since its inception in 2003. The proposed changes have been put forward by a dedicated Task Force and their goal was to remove the ambiguity and complexity for employers.
The Task Force’s 22 recommendations were jointly agreed to by union and business representatives. However, it’s important to note that the formal legislation based off those recommendations are in the process of being drafted. Once drafted, the changes will be introduced as a Bill sometime in 2023 and modelling and testing will also be carried out to provide greater certainty that the new rules and methods are workable in practice. Following that process, there will be a transition period before the Bill becomes law.
As it’s crucial for organisations to stay on top of these changes, we’ve put together this handy blog. We’ll outline the current challenges organisations face, four proposed changes to the Act and how organisations can prepare.
What is the New Zealand Holidays Act?
The New Zealand Holiday Act (2003) is a law that sets out the rules around New Zealand employee entitlements to holidays, including annual leave, public holidays and sick leave. These rules were implemented to ensure all employees receive the correct entitlements and pay.
To remain compliant with the New Zealand Holidays Act, employers must adhere to the following responsibilities:
- Maintain accurate records of their employees’ hours, pay and leave
- Permit their employees to take annual, sick or bereavement leave once they become entitled to it
- Ensure their employees are paid on a public holiday as they would if they were working that day
Current challenges with the New Zealand Holidays Act
The New Zealand Holidays Act has faced several challenges in recent years, particularly with regard to ensuring that employees are receiving their full entitlements for holidays, including annual leave and public holidays. These complications are said to result from confusing legislation, placing many New Zealand businesses at risk of non-compliance and underpaying workers. Let’s explore these issues in more detail.
Calculating holiday pay
One of the primary challenges with the Holidays Act is the complex calculation required to determine how much holiday pay an employee is entitled to. This calculation includes factors such as an employee’s average weekly earnings and the hours they have worked, making it difficult for employers to accurately calculate and pay holiday entitlements.
Underpayment of holiday entitlements
Due to the complexity of the holiday pay calculation, there have been instances where employers have inadvertently underpaid their employees for holiday entitlements. This has led to many legal disputes and court cases, with some employers being required to pay back significant sums of money to employees to correct underpayments.
Inconsistencies in application
There have been concerns about the inconsistent application of the Holidays Act across different industries and sectors. Some industries, such as healthcare and education, have unique holiday entitlement arrangements that can be difficult to navigate, leading to confusion and inconsistencies in the application of the Act.
Challenges for small businesses
The complexities of the Act can be particularly challenging for small businesses. These businesses may not have dedicated HR staff to help navigate the Act’s requirements and may struggle to calculate and pay holiday entitlements accurately.
The proposed changes to the Act
In response to these issues and to minimise compliance risk for businesses across the country, the New Zealand government has proposed four major changes to the Holidays Act, which all businesses must be aware of.
Simplifying the calculation of holiday pay
The government proposed introducing a more straightforward calculation for holiday pay, making it easier for employers to accurately calculate and pay their employees’ entitlements. These changes are said to make a significant difference for shift and deskless workers, who are typically employed on a casual basis.
Previously, annual leave payments were paid using the greater Ordinary Weekly Pay (OWP) or the average weekly earnings from the employee from the last 12 months. Under the updated Act, public holidays will include another calculation so that holiday payments can also be paid at the average weekly earnings from the last 13 weeks.
Providing more guidance and support for employers
The government plans to provide greater guidance and support for employers to help them navigate the requirements of the Holidays Act and ensure that they are meeting their obligations to their employees. For instance, there has been ongoing confusion over how pay as you earn (PAYE) applies to irregular work types, particularly for employees in shift work. The new Holidays Act legislation is set to offer a clearer definition to ensure employees and their work are documented accurately.
Faster access to certain leave entitlements
Arguably, one of the biggest proposed changes to the Holidays Act is around the timeline of when an employee is entitled to leave. Currently, employees are expected to have been working for their employer for around 12 months before they can access annual leave. Sick, bereavement and public holiday leave are usually available at around the six-month mark.
Under the new proposed legislation, employees will be granted entitlement to these types of leave from their first day on the job.
Adjustment to parental leave and return to work pay
When an employee takes parental leave, they receive reduced annual leave pay for around 12 months after they’ve returned to work, often referred to as the ‘parental leave override’. The proposed changes will mean that this initiative will be dismissed and that returning workers will receive the full payment for annual leave.
How can organisations prepare for these changes?
There is no set date for when the Task Force’s recommendations will be drafted into legislation, but the recommendations have been accepted by the Government. Until that happens, organisations must still do their due diligence to ensure they are across the full scope of what’s to come. Organisations should also review their workforce management and payroll processes and consider how these new changes will impact their operations – particularly policies around the granting and tracking of leave.
For further information on the Holidays Act review, check the Ministry of Business, Innovation & Employment’s web page.
Disclaimer: This document contains general information and is also not intended to constitute legal or taxation advice. If you need legal or taxation advice, we recommend you speak to a qualified adviser.
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