As promised by Workplace Relations Minister Brooke van Velden, replacing the Holidays Act 2003 has finally begun to take shape. The incumbent legislation certainly has its pitfalls, but will the reforms currently being proposed by Government, into what we understand will be called the Employment Leave Bill make life easier for employers and workers in New Zealand, or will they create yet more red tape? Here is our summary of the proposed reforms.

Changes to the way leave is accrued

Currently, employees are provided annual leave as a four-week lump sum entitlement after 12 months of continuous employment. Similarly, an employee must work continuously for six months before they are entitled to sick leave, family violence leave, or bereavement leave. 

Based on the announcements to date, it is proposed that moving forward, “workers” will accrue leave  accrue from their first day of work.  References to “workers” rather than employees is a shift in terminology – but it is unclear whether that is intentional or simply how the proposed changes have been communicated. 

Under the proposed changes:

  • Annual leave would accrue at a rate of 0.0769 hours per each contracted hour of work (calculated as the four weeks a worker is currently entitled to, divided by 52 weeks in the year).
  • Sick leave would also accrue in hours from a worker’s first day of work, but at the proportionate rate of 0.0385 hours of leave per contracted hour (to match current sick leave entitlements).
  • A worker’s sick leave allocation would be pro-rated to be proportionate with the number of days they work per week, reducing part time workers’ sick leave entitlements.
  • Workers would be able to use their leave entitlements by the hour instead of by the day.
  • All workers would be able to access bereavement and family violence leave from their first working day. This would remain as day-based entitlements, although workers would be able to take part-days of leave.
  • Annual leave and sick leave would accrue when a worker is on paid leave, parental leave, jury duty, and volunteer leave. However, it would no longer accrue when a worker is receiving ACC, or on a period of unpaid leave.
  • Workers would be able to cash up to 25% of their annual leave in each 12-month period as at their 12-month work anniversary – which if leave is accrued across years could equate to more than the current up to one week’s entitlement per entitlement year.
  • Workers would also see a new test implemented around being paid for public holidays. This would be based on whether the worker has worked more than half of the relevant days (Fridays for example) in previous weeks.

How will leave be paid?

A blanket hourly leave pay rate has been proposed, based on a worker’s base wage for the day of leave, with any fixed allowances to be paid in full. Workers who are paid by the piece (like number of fruit buckets filled) would see an average hourly rate used. 

Of particular interest for employers and workers alike, the proposed changes include that payments such as commission, bonuses and variable allowances would not be included in holiday pay calculations. 

A more comprehensive statement of pay system has also been proposed.  Employers would have more onerous obligations to record itemised pay and leave that is completely transparent to the worker, so they know exactly how their pay and leave has been calculated.

Returning from parental leave

Currently, employees returning from parental leave face reduced holiday pay when taking leave for a period after their return.  The proposed changes would remove that element of the existing system and ensure parents returning to work would receive full pay when taking annual leave in the 12 months following their return.

Change for casuals and Leave Compensation Payments

Currently, employers and casual workers can agree to use “pay as you go” which is an 8% loading of the worker’s gross earnings each pay period (if work is irregular), instead of accruing, taking and being paid for annual leave.

The proposed changes would see casual workers receive a 12.5% Leave Compensation Payment (LCP) in recognition of sick leave and annual leave added to each hour worked. This is aimed to work in a similar way to ‘pay as you go,’ and it would be a separate component to be shown separately on employee’s pay slips.

The proposed changes also envisage a LCP for waged workers who work over and above their contracted hours. Rather than accrue annual or sick leave for the extra hours, a 12.5% LCP would be paid on the extra hours worked instead.

When can we expect these changes and what are our thoughts?

A 24-month implementation period is scheduled from when the proposed changes make their way into a Bill, and that Bill has passed with the aim of providing payroll providers time to make changes to their systems.

While it is encouraging to see a proposal to replace the Holidays Act with a system designed to address current issues, the proposal also represents new challenges for both employers and workers to contend with.  We can see the proposed changes being advantageous for people that work the increasingly popular non-traditional working week by being able to take shorter periods of leave as they accrue them. Employers could also benefit from a simplified leave system as they would no longer have to figure out how to categorise leave payments for a non-traditional working week.

Despite this, there is potential for part-time workers, and those who rely on bonuses or commissions to supplement their income and increase the value of their holiday pay, to lose out on some current entitlements. 

Once the Bill has been drafted and introduced it will be considered by a Select Committee where the public and interested parties will have the opportunity to provide feedback. We will provide further updates as these proposed changes progress through Parliament.

For more information

If you or your organisation need advice on leave entitlements and/or this latest update, please do not hesitate to reach out. For more information, contact 04 472 0020 or one of our employment law experts.

See more of our employment law articles here.