FACTSHEET: The Holidays Act is changing. Here’s what you need to know.
March 1, 2021
Following a review period lasting over two years, the Government has announced a planned overhaul of the Holidays Act.
The Government has accepted the Holidays Act Taskforce’s 22 recommendations which aim to improve the tricky legislation and provide greater certainty for employers and employees.
Changes are wide ranging and include a new 13-week review period option for annual holidays payments, earlier eligibility to sick and bereavement leave, and a specific provision for leave to be taken in advance.
The Taskforce was established in 2018, following a joint request from Business NZ and the Council of Trade Unions.
Minister of Workplace Relations and Safety Michael Wood said, “the changes put forward by the Holidays Act Taskforce will make it easier to calculate entitlements and pay, giving employees and employers certainty and transparency. Business and union representatives reached consensus on these changes and we are delivering on our election commitment to implement them.”
The review was completed back in October 2019 and already there are some variations between what we saw in our sneak preview of the original review and the details that were released last week. More changes may come as they get into the detailed design of the legislation.
It’s important to note that these are just recommendations at this stage and it will take some time for new legislation to be drafted then passed. In the meantime, employers must continue to pay their employees based on the current Act and remediate any historical underpayments.
FACTSHEET: Changes to the Holidays Act
What are the main proposed changes to the Holidays Act?
How holiday leave payments are calculated
There will be a new 13-week calculation for average weekly earnings. Annual holidays will need to be paid at the greater of:
Ordinary Leave Pay (what the employee would have earned if they had been at work on the day(s) in question)
Average weekly earnings over the last 13 weeks
Average weekly earnings over the last 52 weeks
A clearer definition of ‘gross earnings’ will mean all cash payments received, except direct reimbursements for costs incurred. This means that even Christmas bonuses will have 8% holiday pay applied and will impact leave rates.
FBAPS (Family violence leave, Bereavement leave, Alternative holidays, Public holidays, Sick leave) leave types will no longer use Relevant Daily Pay or Average Daily Pay over the last 52 weeks. Instead be paid at the greater of:
Ordinary Leave Pay
Average Daily Pay over the last 13 weeks
How deduction of the entitlement is calculated
Annual holidays entitlements will continue to be calculated, taken, paid and held in weeks or portions of weeks only.
There will be a definition of how to determine what a week is for annual holidays entitlements for employees that work variable hours. Where hours are not specified in an employment agreement or roster, a week will be determined based on the average hours worked over the last 13 weeks. This is a complex calculation that will require a detailed review of 13 weeks of timesheets.
Detailed formula will be introduced for determining an Otherwise Working Day.
Days of FBAPS leave can be deducted in days or part-days (sick and family violence leave can be taken in units of less than a day, at a minimum of a ¼ of a day).
Taking annual holidays in advance
Employees will be able to take annual holidays in advance on a pro-rata basis. This is currently common practice, but there is no specific provision in the Holidays Act for leave in advance so it is at the discretion of the employer.
Eligibility for FBAPS
Eligible employees will be entitled to bereavement leave and family violence leave from their first day of employment.
Eligible employees will be able to take one day’s sick leave from their first day of employment, with an additional day given per month until the minimum entitlement is reached.
Bereavement leave will be extended to cover a wider range of family members, including cultural family groups and more modern family structures.
There will be clearer guidelines about which employees are entitled to receive Holiday Pay-as-you-go, including a definition of what ‘intermittent or irregular’ means.
Employers will be required to review PAYG employees every 13 weeks to check their eligibility for PAYG.
Employers will no longer be able to pay PAYG for employees on fixed term contracts of less than 12 months.
Other notable changes
The current parental leave ‘override’ will be removed to address discrimination against parents who take time off to care for their young children. Removing this provision will mean that employees returning to work following parental leave will be paid at their full rate for annual holidays.
Payslips will be required, with a significant amount of detail, so employees know what their used and remaining leave entitlements are, and how these were calculated.
The recommendations from the Taskforce are fairly high level at this stage and a lot of the detail is still to be determined during the process of writing the new legislation. As a result, we don’t yet have a full picture of all the changes.
What are the next steps?
Work has now begun on further detailed policy design. Legislation to implement the changes is expected to be introduced in early 2022 and will go through the full parliamentary process, which can take some time.
The Minister has promised that after the legislation is enacted businesses and employers will be given plenty of time and guidance to prepare for the changes.
When will the Holidays Act change?
The actual time frame is still unclear, but it’s likely to be at least 2-3 years before we have a new Holidays Act.
Until then employers need to continue to pay employees’ their entitlements under the current Holidays Act. The Labour Inspectorate has confirmed it is continuing its programme of audits and investigations.
How will the changes be implemented in PayHero?
We’re keeping a close eye on developments and assessing what changes will be required to PayHero. All NZ payroll systems will need to make some changes. Some payroll systems (like PayHero) will only require minimal changes and others will need a complete overhaul.
PayHero has a big headstart over many other payroll systems as it already stores annual leave balances in weeks and gives you the ability to record timesheets to keep track of changing employee work patterns. We also have a review period built in to PayHero, so it will be easy to implement the new 13 week review period for annual holidays entitlements and Average Daily Pay.
As and when the Act does change, PayHero will be automatically updated behind the scenes to ensure that our customers stay compliant without having to do any additional work.