Anticipated changes to the Holidays Act– what Employers and Employees can expect

The report of the Holidays Act Taskforce, focussing on problems with the Holidays Act 2003 (“the Act”), was released to the Government in late 2019. The Government has since announced it has accepted all of the Holidays Act Taskforce’s recommendations. Employers and employees can expect legislation reflecting these changes to be introduced prior to the next election.

Since its introduction in 2003, the Act has been in the spotlight for all the wrong reasons. It was intended to be simple and easy to apply, providing clarity of employees’ holiday entitlements and employer obligations. While the provisions are drafted neatly in the abstract, when applied in practice, particularly to any unconventional working arrangement, compliance becomes difficult to achieve.

Several changes to the Act have already been implemented by the government. Notably, these include:

• the Holidays (Bereavement Leave for Miscarriage) Amendment Act 2021, entitling employees to three days of bereavement leave for miscarriage or stillbirths;
• the Holidays (Increasing Sick Leave) Amendment Act 2021 which increased sick leave entitlements from five days to 10 days per year after six months’ of employment; and
• Te Kahui o Matariki Public Holiday Act 2022 introduced Matariki as a public holiday.

What other changes can be expected?

Annual holidays

The most anticipated change of the Taskforce’s review is the change in how employers will calculate annual holiday entitlement as well as FBAPS (family violence leave, bereavement leave, alternate holidays, public holidays, and sick leave).

Determining what a ‘week’ is for those who work variable hours has been given more clarification. The recommendations place a focus on what is said in the employment agreement, otherwise, the average number of hours is to be taken from the corresponding days from the previous 13 weeks.

The recommendations maintain the status quo of four weeks’ annual holidays’ entitlement when the employee has worked for their employer for 12 months. However, it is proposed that employees will be able to take annual holidays on a ‘pro-rata’ basis in their first 12 months of employment.

The current concept of “Ordinary Weekly Pay” is to be replaced by “Ordinary Leave Pay” (OLP). OLP will encompass an employee’s base rate plus any scheduled overtime, allowance, commission, and incentive payments.

Annual Holiday payments are proposed to be paid at whatever is greater between OLP, average weekly earnings over the last 13 weeks, and average weekly earnings over the last 52 weeks.

FBAPS leave

The current “Average Daily Pay” (ADP is calculated over the past 52 weeks) is to be replaced in favour of the new OLP. Family violence Leave, bereavement leave, alternative holidays, public holidays and sick leave are to be paid at the greater of OLP or the average daily pay over the last 13 weeks.

Alternative holidays

Presently, employees are entitled to an alternative holiday if they work (or are on call) on a public holiday that is an “Otherwise Working Day”. The recommendations propose that in the first instance, this should be determined by reference to the employment agreement. Otherwise, if the employee has worked 50% or more of the corresponding days in either the previous four or thirteen weeks, it will be an “Otherwise Working Day”.

Gross earnings

The recent 2021 Court of Appeal decision of Metropolitan Glass & Glazing Ltd held that when a payment is subject to residual discretion, even when all conditions are met, it is to be considered a discretionary payment and not a contractual one. If adopted, the Taskforce’s recommendations would replace the Court of Appeal’s definition, and extend “gross earnings” to include any payment (except for reimbursement) that falls within any given reference period. This means that discretionary payments would form part of any calculations for payment for an employee’s annual holidays.

Pay-as-you-go-leave

The Taskforce recommendations consciously tighten the use of pay-as-you-go-leave (PAYG). It is envisaged that only employees who are engaged in strictly casual work will be entitled to receive PAYG. If an employee qualifies, the employer must review their employment status every 13 weeks to ensure that the employee is still engaged in genuine casual work. Importantly, PAYG will no longer be available for employees on fixed-term arrangements.

Record-keeping requirements

Employers are obligated to keep their employees’ wages, time, and leave records as well as to make them accessible to their employees. Currently, there is no legal requirement to provide employees with payslips. The Taskforce’s recommendations will require employers to provide payslips (physical or digital). It is proposed that the payslips will include general information, leave entitlements, and any relevant corrections.

What are the key takeaways?

It is promising to see that the deficiencies of the Holidays Act, particularly its application to variable working hours are attempting to be addressed. However, it is unclear when the legislation will be amended and whether the proposed changes will achieve the desired reprieve from complexity, as the recommendations refine the Act rather than reinvent it. Additionally (and critically), the proposed changes will put pressure on businesses as employee entitlement increases, with the potential for these to be implemented with the economy slowing.

If you have any questions about the above or how these changes may affect you in your particular circumstance, then please do not hesitate to contact a member of our employment team.

The information contained in this article is general information only, and does not constitute specific legal or other professional advice and should not be relied on as such. Readers should obtain specific advice before making any decisions or taking any action based upon information contained in this document.