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The Employment Leave Bill to supplant the problematic Holidays Act 2003 was introduced to Parliament yesterday and has received early support from the Employers and Manufacturers Association, although the Council of Trade Unions (CTU) has been much more circumspect.
The Government hopes to have the Bill passed before the 7 November elections, with the vast majority of the provisions coming into effect on the second anniversary of the Royal Assent.
We take you through some of the detail.
Overview
The bill is not easy to come to grips with as it is highly technical and runs to 157 pages, but it is clear about what it wishes to achieve, stating in the Explanatory Note:
“These changes seek to address ambiguity in the current Act and ensure that entitlements are calculated on a clear and consistent basis. They also aim to make the system simpler and easier to apply to varied working patterns, including part-time, variable, and shift-based arrangements. The intent is to enhance certainty and flexibility for employees and to enable employers to more accurately systematise entitlements, enhancing both simplicity and workability”.
The bill introduces fundamental conceptual changes as to how leave entitlements will be provided, including that:
- employees will no longer accrue four weeks annual leave, instead receiving leave at a set rate per hour, and
sick leave entitlements will be prorated for part-time employees and removed for casual employees who will instead be compensated by a 12.5% leave compensation payment.
Time and a half payments remain for working on public holidays, but employees will no longer receive a full alternative holiday. Instead, employees will receive an alternative leave hour for each hour worked.
Payroll systems will need to be ready to go to process leave in accordance with the new legislation in the first pay run post commencement. However, employers will have a further year to amend pre-existing employment agreements so that they comply with the new regime.
As to the transition for prior Holidays Act entitlements, the bill provides that:
- Annual, sick and alternative leave as at commencement will be converted to hours-based entitlements to comply with the new regime. The bill provides a formula for that calculation and a methodology for addressing entitlements up to the employee’s first anniversary date post commencement.
- Casual employees who happen to have a sick leave balance as at commencement will lose that balance.
- Any employee who is not as yet entitled to bereavement or family leave as at commencement will become entitled to that leave.
Detailed analysis
We begin our analysis by taking a high-level look at the problems the Bill seeks to solve, the solutions it proposes and how successful we think they will be.
| Holidays Act 2003 issue | Does it fix the issue? | Employment Leave Bill position |
| Weekly accrual of annual leave | Yes |
Annual leave will accrue at a set rate per hour for each standard hour worked. The accrual is banked as you go, avoiding the need to adjust any accrual for the employee’s standard hours at the time they take leave. The minimum hourly accrual rate is 0.0769 (the equivalent of 4 weeks leave/52 weeks). There are fewer circumstances in which annual leave will accrue. The Holidays Act provides for annual leave to accrue where an employee is off work and receiving ACC compensation or on unpaid sick or bereavement leave. That will no longer be the case. |
| Confusing array of calculations – three for annual leave during employment and a third for termination leave pay | Yes |
One payment calculation for all leave under the bill referred to as a “leave hourly rate”. For salaried workers this will require employers to determine the standard hourly rate for each employee. There is a different methodology for employees who work different standard hours in each pay period. For employees paid wholly or partially on piece rates or commission structures, employers must pay the greater of the applicable standard contractual rate or a rate that incorporates recent commission and piece rates. An employer must continue to pay any fixed allowances for the period of the leave. |
| Extra payments and the definition of "gross earnings" | Mostly. Some complexity remains for employees who receive piece rates or commission payments - although the bill does provide a set formula |
For employees on a salary or hourly wage, all leave types are paid using one calculation method and exclude allowances and productivity or incentive-based payments (including commission). Employers will no longer be required to include overtime, bonuses, allowances and commission in leave payments. There is a different formula for employees who receive piece rates or commission in their remuneration structure, but this is probably unavoidable. |
| Issues with calculating FBAPS leave (family violence leave, bereavement leave, alternative holidays, public holidays, and sick leave) | Yes | The current requirement for calculating FBAPS has significant complexity in that it requires employers to work out what an employee would have earned on the day in question. That problem is entirely removed due to the introduction of an hourly leave payment rate (with the only exception being for those on piece rates or commission). |
| Determining what is an otherwise working day | Yes |
The Holidays Act requires an employer to consider a range of factors without any specific guidance or formula for determining an otherwise working day. Under the bill, an otherwise working day will be determined by the employee’s standard hours set out in their employment agreement or in a fixed roster. There is now a specific formula to apply where the employment contract doesn’t contain a specified roster or an agreement on hours. This provides that it is an otherwise working day if the employee has worked (or was on paid or unpaid leave) on the relevant day for 50% or more in the previous 13 weeks. The bill also provides for a methodology to determine how many hours apply to the otherwise working day in the event that this is not covered by the employment agreement. The calculation is average daily hours over the preceding 93 days. |
| Leave entitlements for casuals or where the employee works additional hours | Equivalent with a higher cost to businesses |
The bill introduces a “leave compensation payment” which applies to casual workers and those who work additional hours above their standard hours. The leave compensation payment is 12.5% of the employee’s ordinary hourly rate for each hour in that pay period. This change is necessary to address the change to calculate annual leave off standard hours only and the removal of a requirement to factor in payment for additional hours worked into the relevant leave rate. The bill defines “casual” as where an employer is not obliged to offer work and the employee is not obliged to accept it. This is typically the test applied in the absence of a statutory definition. The leave compensation payment for casuals replaces the standard 8% pay as you go calculation. |
| Sick leave entitlements for casual and part time employees | Yes |
Sick leave entitlements for part-time employees will be pro-rated based on part-time hours. Casual employees will not be entitled to any sick leave (which is factored into the 12.5% leave compensation payment). There is no longer any requirement to determine whether an employee meets the average hours entitlement over the previous 6 months. |
| Cumbersome processes around cashing up annual leave | Yes |
From their start date anniversary, employees can request to cash out up to 25% of their accrued annual leave hours in each subsequent 12-month period based on the balance at their start date anniversary. This will allow an employee with a large balance to cash out sooner and potentially more than under the Holidays Act. An employer can decline a cash out request without providing a reason or have a policy against cash outs. The restrictions on requesting or requiring cash out of leave remain. |
| Close down periods | Yes |
The bill continues the restriction on having one close down period per year and includes notification requirements for employees. But the current requirement in certain circumstances on an employer to reset an employee’s anniversary date at the start of a close down period has been removed. |
| Lack of guidance for how employers should go about completing holiday pay remediation projects. | Yes |
The bill introduces an optional remediation process for non-compliance with the Holidays Act 2003. This will be supplemented by regulations to be developed and published following Royal Assent (although they will not take effect until after the same two year transition period that applies to the bill itself). On an initial review, the remediation scheme appears to provide welcome certainty for employers which have proceedings before the Employment Authority and for those facing future claims relating to Holidays Act non-compliance. Employers with remediation projects on foot will want to consider the proposed scheme and its implications for them. |
As we continue to digest the detail of the bill, we will update our commentary.
