Earlier this week, the Minister for Workplace Relations released the Final Report of the Holidays Act Taskforce (Report) and announced that all of the recommendations in the Report had been accepted by the Government.

Employers have been urging the Government for years to address the well-documented issues and complexities with the Holidays Act 2003 (Act).  It is therefore concerning to note that the Report is dated October 2019, yet it was not released for over a year, and all of the recommendations have been accepted.

In what will be a blow for many employers, the recommendations in the Report do little to address the key holiday pay issues faced by NZ workplaces. Some of the changes proposed may in fact increase the complexities and costs associated with holiday pay compliance.

What New Zealand workplaces need is a simplified accrual methodology for annual holidays. This would provide clarity for businesses and workers alike, and would reduce complexity and cost. Unfortunately the recommendations in this Report do little to achieve that.

The Taskforce’s key recommendations include:

1.       Retaining the current approach of providing and calculating annual holidays in “weeks” or portions of weeks, and retaining the current approach of providing and calculating FBAPS[1] leave in days:

• We recommended that employers and employees have the ability to accrue and calculate leave entitlements in the time unit that best suits the workplace (whether hours, days or weeks) to ensure the Act is flexible and adaptable to changing modern work patterns.
• It is disappointing to see that to see that the Taskforce has recommended the current (complex and unworkable) approach be retained.

2.       Re-working the methodologies for annual holidays and FBAPS leave, providing for a total of four methodologies:

• The Taskforce recommended that annual holiday payments be calculated by applying the higher of: “ordinary leave pay”, “average weekly pay for the last four or 13 weeks” and “average weekly pay for the last 52 weeks”. The Minister has decided that the short-run average weekly calculation should be based on a 13-week formula.
• The Taskforce recommended that FBAPS leave payments are calculated by applying the higher of: “ordinary leave pay” or “average daily pay”. The Minister has decided that the average daily pay calculation should be based on a 13-week formula.
• This proposal (of four formulae to calculate leave entitlements, three of which apply to annual holidays) is overly complex and will not simplify the Act.

3.       Defining “gross earnings” as including “all cash payments received, except direct reimbursements for costs incurred”:

• “Gross earnings” is a key concept used in the Act to calculate leave entitlements. This proposed new definition widens the concept of gross earnings to include all bonus payments, including those that are entirely discretionary.
• This concept is alarming and runs contrary to well-known concepts of discretionary pay.

4.       On the sale and transfer of a business, employees would have a choice about whether to transfer all of their leave entitlements to the new employer or have them paid out and reset:

• This recommendation is sensible and will be welcomed by employers, as the current obligation to pay out all annual holiday entitlements upon the transfer of a business is a significant issue for vendors and purchasers, and it can also have the effect of disadvantaging employees.
• However, the approach of providing employees with a “choice” in relation to the treatment of their entitlements could cause further complexities in sale of business transactions. We had recommended that employers be provided with the express ability to transfer employee leave entitlements to a new employer (in situations where the employee’s employment is transferring).

5.       Providing for “prescriptive processes” to determine how much leave needs to be taken for an employee to have a period of time away from work (ie where it is not clear what a “week” is for the employee) and to determine when a particular day is an “otherwise working day” for FBAPS purposes (eg if an employee has worked 50% or more of the corresponding days in the previous four or 13 weeks):

• The Minister has decided to adopt a 13-week period for this assessment. This assessment will also have the effect of introducing further formulae for employers (and their payroll providers) to apply and comply with.

6.       Amending closedown provisions to provide greater certainty for employees, including the removal of the requirement that holidays are paid out at 8% and that the employee’s anniversary date should be reset (although it would still be possible for anniversary dates to be reset by agreement):

• We agree with this recommendation, as the current provisions in the Act around closedown periods result in a number of compliance issues for employers and do not result in any real benefit for employees.

In addition, the Taskforce has made a number of recommendations in relation to entitlement eligibility and availability.

Those recommendations were:

• Expressly allowing employees in their first year of employment to take annual holidays in advance on a pro rata basis (e.g. employees could take two weeks’ leave after working for six months).
• Providing employees with an entitlement to bereavement leave and family violence leave from their first day of employment, instead of becoming entitled to it after six months.
• Providing employees with an entitlement to one day of sick leave from their first day of employment, with an additional day accrued each month until the full entitlement of five days is reached after four months.
• Expansion of bereavement leave to cover more family members, including cultural family groups and more modern family structures.
• Expressly allowing employees to take sick leave and family violence leave in units of less than a day, at a minimum of ¼ of a day (although we note that this is already a common practice in many workplaces).
• Removing the ‘parental leave override’, to ensure that for parents returning from parental leave, any annual holidays they became entitled to while on parental leave would be paid at the same rate as other annual holidays.
• Removing the ability to use PAYG for employees on fixed term contracts of less than 12 months, instead providing for a more detailed definition for when PAYG may be used by employees because the work pattern is “intermittent and irregular”.

While many of these eligibility recommendations will be welcomed by employees and unions, they will come at an additional cost to businesses.

Going forward

Although the Report contains some recommendations to address compliance issues currently faced by employers, it represents a lost opportunity for an overhaul of this anachronistic piece of legislation. The Act is no longer fit for purpose and the Report (as accepted by the Government), fails to appropriately address the ongoing complexity, risk and uncertainty for employers and employees.

Get in touch

Please get in touch with our contacts if you have any questions about the report and how it impacts on your organisation.