Holidays Act Changes and Fair Pay Agreements

In 2018 the Government established the Holidays Act Taskforce (the Taskforce) to address challenges with the Holidays Act 2003 (the Act), following a joint request by the New Zealand Council of Trade Unions, and BusinessNZ. That request flowed from well-publicised compliance failures by organisations throughout New Zealand. Many of these were contributed to by the Act’s lack of clarity and certainty, making it difficult to implement in its current form. The Taskforce submitted its recommendations to the Minister in October 2019. The final report was released to the public in February 2021 (the Report).

The Taskforce made 22 recommendations, jointly agreed to by union and business representatives. On 23 February 2021, Hon Michael Wood, Minister Workplace Relations and Safety, announced the Government would accept the recommendations. Legislation to implement the proposed changes is expected to be introduced in early 2022 and will go through the full parliamentary process.

Key Recommendations of the Report

Calculation of holiday and leave payments

Under the Act in its current form, payments for annual holidays are paid at the greater of ordinary weekly pay or average weekly earnings over the last 12 months. The Report’s proposed changes would mean annual holiday payments are paid at the greater of:

  • ‘ordinary leave pay’ (being the amount 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; or
  • average weekly earnings over the last 52 weeks.

The ‘parental leave override’ in the Parental Leave and Employment Protection Act 1987 would be removed and the same calculation would be used for all employees (including those who have been on parental leave) when determining their payment entitlements during periods of annual leave. This means employees returning from parental leave would be paid at their full rate for all their annual holidays in order to address discriminatory practises against parents who need to take time off to care for their young children.

The Report also addresses payments for family violence leave, bereavement/tangihanga leave, alternative holidays, public holidays, and sick leave (FBAPS). These will be paid at the greater of ordinary leave pay, or average daily pay over the last 13 weeks. Further changes to the availability of employer-funded sick leave have also been announced through the passing of the Holidays (Increasing Sick Leave) Amendment Act. Eligible employees will soon be entitled to 10 days of sick leave per year, instead of five (see further detail about this change, below).

The Act in its current form has caused concerns over the definition of ‘gross earnings’. The lack of clarity around what payments are included in ‘gross earnings’ has been the subject of recent litigation and led to the Taskforce recommending a new all-encompassing definition of gross earnings, being ‘all cash payments received, except direct reimbursements for costs incurred.’

Eligibility for Family Violence Leave, Bereavement/Tangihanga Leave, Alternative Holidays, Public Holidays and Sick leave (FBAPS)

The proposed changes address eligibility for FBAPS. Bereavement/tangihanga leave and family violence leave will be available from the employee’s first day. Additionally, bereavement/tangihanga leave will be extended to cover more family members and consider modern family arrangements and cultural family groups.

Calculation for deduction of entitlement

Annual leave entitlements will be calculated, taken, paid, and held in weeks or portions of weeks. This recommendation is designed to respond to the lack of detail within the Act in its current form regarding how to determine what a ‘week’ is in situations where it may not be obvious. The Report recommends a new approach that would use hours stated in an employee’s employment agreement or roster. If there are no hours set in the employment agreement or roster, the average hours worked on corresponding days over the previous 13 weeks will be used.

Deductions may be made in days or part-days for sick and family violence leave, down to a minimum of a quarter of a day.

’Pay-as-you-go’ (PAYG) holiday pay

One area that has caused repeated confusion regarding annual holiday entitlements is how these are to be paid where the employee is engaged for a short period, or for intermittent or irregular work. The Taskforce proposed removing the ability for employers to use pay-as-you-go (PAYG) for employees on fixed-term employment agreements of less than 12-months, and a more detailed definition for when PAYG can be used because a work pattern is ‘intermittent or irregular’. Employers using PAYG arrangements will also be required to review the employee’s work pattern every 13 weeks and assess whether the employee’s work continues to be classified as ‘intermittent or irregular’. This change is important to note for employers who utilise PAYG.

Taking annual holidays in advance

Employees are currently entitled to four weeks’ annual leave only after 12 months of continuous service. Leave in advance is at the discretion of the employer. Under the proposed changes, employees will be entitled to take annual leave holidays in advance, on a pro-rata basis. This change reflects the current practice of many employers.

Holidays (Increasing Sick Leave) Amendment Act

As touched on above, there have been further changes to the Act’s sick leave provisions. The Holidays (Increasing Sick Leave) Amendment Act comes into force on 24 July 2021.  This amendment increases the minimum employee sick leave entitlement from 5 days per year to 10 days per year, after six months of continuous employment. Under these changes sick leave can still only be accumulated up to a maximum sick leave entitlement of 20 days. The circumstances where sick leave is available remains the same, such as if the employee, or a dependant, is sick or injured.

What does this mean for new employees?

New employees will receive 10 days’ sick leave entitlement after six months of continuous service, and every year of continuous service after.

What does this mean for existing employees?

Employees who already have a sick leave entitlement when the legislation comes into force, will be entitled to 10 days’ sick leave on the 12-month anniversary of when they last became entitled to sick leave (their anniversary date). Employees who already are entitled to 10 or more sick days per a year will not be affected by this change.

The Holidays (Bereavement Leave for Miscarriage) Amendment Bill (No 2)

Updates have also been made to the Act’s bereavement/tangihanga provisions through the Holidays (Bereavement Leave for Miscarriage) Amendment Bill (No 2), which came into force on 31 March 2021. An employee, or their partner, is now entitled to take bereavement/tangihanga leave if they experience a stillbirth or a miscarriage. This amendment also extends eligibility for bereavement/tangihanga leave for an unplanned end to a pregnancy to people planning to have a child through adoption or surrogacy. The change gives employees time to grieve and take care of matters relating to the bereavement.

Fair Pay Agreements (FPA)

On 7 May 2021, the Government announced the design of a Fair Pay Agreement (FPA) system. COVID-19 brought the issues associated with setting industry standards to the forefront and made the FPA system a priority for the current government. Its design was based on the report of the Fair Pay Agreement Working Group (the Working Group) in conjunction with public consultation, the New Zealand Council of Trade Unions, and BusinessNZ. The Working Group was established in June 2018 and tasked with making recommendations on the design of a sector-level bargaining system. The Working Group provided its recommendations to the Minister for Workplace Relations and Safety in December 2018.

The proposed FPA system will bring together employers and unions within an industry or occupation to bargain for minimum terms and conditions for all employees in that sector.

Initiating Fair Pay Agreement bargaining

The FPA process will be initiated by unions once they meet a representation threshold of support, or a public interest test is met. FPAs can be occupational or industry specific. Currently, contractors are not included under the proposed FPA system, however the Government plans to incorporate contractors in the near future. It is important to note employers who try to avoid FPA coverage by misclassifying employees as contractors will face penalties.

The bargaining process

Unions will represent employees, and both bargaining parties must use their best endeavours to represent those covered, including non-members, alongside ensuring Māori interests and values are well represented. The occupation or sector to be covered by the FPA should be defined and negotiated by the parties and should cover all employees, including non-members. The Government will fund a portion of this bargaining process for both sides, and employers must also allow employees two two-hour paid meetings during the bargaining process.

The scope of the FPAs must include certain topics like base wages, ordinary hours, overtime, and penalty rates. Further topics such as redundancy, leave, and health and safety must be discussed but are not required to be agreed. There is a degree of flexibility to FPAs, and they can allow for exemptions for businesses if they are in significant financial hardship, apply regional differences and other differential terms, and ensure they comply with the Human Rights Act 1993 and minimum employment entitlements. During this bargaining process industrial action is prohibited.

Finalising a Fair Pay Agreement

If an agreement is reached, the Employment Relations Authority will first vet it to ensure it is lawful. The FPA then goes out for ratification, with both employers and employees voting. Employers are entitled to as many votes as they have employees that would be covered by the FPA. If no agreement can be reached, or the ratification fails more than twice, the Employment Relations Authority sets the terms of the FPA.

Once a FPA is finalised, the Ministry of Business Innovation and Employment will create secondary legislation to bring it into force so it will apply to everyone within coverage. Employees covered by a FPA can enforce their rights through the standard employment dispute resolution system, and the Labour Inspector can additionally enforce certain terms of the FPA.

The Government is not intending to introduce legislation regarding FPAs until November 2021, which will then go through the full legislative process. This is expected to take approximately six months.