Reform of the Holidays Act 2003
The Holidays Act 2003 (the Act) sets legal obligations and minimum entitlements for holidays and leave an employer must provide to an employee. The Act focuses on striking a balance between an employee’s work and their life outside of it.
Recently, the Government proposed reform of the Act, aiming to find a resolution to the challenges affecting not only employers and employees, but also payroll providers. This article summarises the history of the Act, the existing issues, and the amendments proposed.
History of the Act
The Act was introduced in 2003. It has been a challenging piece of legislation that tends to become a political football, one that so often gets kicked down the road. Employers and payroll providers find the current Act difficult to apply in practice. It is unclear and provides limited certainty surrounding payment for entitlements. Over the years, one of the most reliably problematic issues with the Act is its lack of applicability to more variable employment arrangements e.g. variable work hours, payment involving commission, regular changes to work pattern and work completed over public holidays. Furthermore, the Act cannot be readily systematised in a payroll system.[1] As a result, some employees are not receiving correct entitlements, and, in some instances, businesses, government departments, and other employers are making miscalculations and unintentional errors. We have seen numerous examples over the years of employers making huge, backdated payouts to staff for miscalculated holiday pay.
The previous Labour Government promised to amend the Act during the last Parliamentary term, with an aim to provide a fair, safe, and productive workplace for all. Along with simplifying the act, the Government had a particular focus on helping vulnerable groups in New Zealand such as women, Māori, and those with dependants.[2] Work commenced in 2018 to address the issues with the Act, including the creation of the Holidays Act Taskforce. The Taskforce, comprised of business and government representatives, made 22 recommendations in 2019, all of which were adopted in the then Government’s plan to amend the Act.
These recommendations focused on a more prescriptive approach and process for calculating entitlements. These amendments were subsequently criticised, with some noting that although the underlying framework of the Act was retained, the new detailed processes and prescriptive methodologies did not simplify the Act as was intended.[3] The Labour Government did not introduce the taskforces recommendations before the election.
The new National-led Government has proposed reform of the Act to address these existing issues that were not address by the Labour-led government.
Amendments proposed
Overall, the Government believes the simplification of the current Act is constrained by the previous Government wanting to ensure no employee would be worse off than under the current Act, in any circumstances.
In recognition of this, the Government has proposed amendments to remove existing issues in three overarching areas. These are:
- Earning, taking, and paying annual leave;
- Paying and accumulating other leave types (family violence, bereavement, and sick leave and alternative and public holidays); and
- Amendments to other provisions and/or legislation.
Earning, taking, and paying annual leave
Under the proposed amendments, annual leave entitlements will be calculated through a weeks-based accrual system which will accrue continuously during employment. This is a change from the current entitlement of four weeks annual leave after 12 months of continuous employment. Once employment ends, there will be one payment calculation for annual leave.
Moreover, the Government proposes to adopt an objective criterion instead of using judgement and/or discretion for determining eligibility for pay-as-you-go/holiday entitlement payments.
Paying and accumulating other leave types (family violence, bereavement, and sick leave and alternative and public holidays)
The Government also proposes changes to the calculation of Family Violence, Bereavement, and Sick (FBS) Leave, and Alternative and Public Holidays (FBAPS leave).
FBS leave entitlements will be available for employees when they first start working, and 10 days of sick leave will accumulate over the first six months of employment. Part days can be taken of FBS leave, proportionate to the time that would have been worked on the day. The calculation of FBAPS leave payments will be changed to a base rate for wages/salary and fixed allowances, plus an average of productivity or incentive payments.
Additionally, the scope for bereavement leave will be extended so employees can access it for varied family arrangements or cultural practices.
Amendments to other provisions and/or legislation
The Government has also proposed amendments to Part 6A of the Employment Relations Act 2000, focusing on a flexible approach which enables the treatment of leave entitlements to be negotiated by the incoming and outgoing employers rather than requiring annual leave to be paid out.
Additionally, under the reforms, employers would be legally required to provide a pay statement in each pay period for their employee. Leave records are also to be updated, including some new information and some clarifications to existing provisions.
Targeted consultation
The Government announced a draft exposure Bill would be released for consultation in September 2024, which is now underway. The Ministry of Business, Innovation, and Employment selected a sample of organisations and individuals to consult with in the Government’s targeted consultation. Selection of stakeholders was promised to be based on effective representation of the groups who will be affected by proposed amendments. After consultation, the Government will reassess and consider if any further changes need to be made to the Bill before it is introduced.
Assistance
If your business could benefit from advice regarding its current Holidays Act obligations, or you’re an employee who needs assistance understanding your Holidays Act entitlements, do not hesitate to contact the Dyhrberg Drayton Employment Law team for assistance.
Lisa Nguyen, Law Clerk and Lachlan Spence, Lawyer.
[1] (Hon Brooke van Velden) Holidays Act Review: background, progress and next steps (MBIE, 21 December 2023) at 5.
[2] Holidays (Increasing Sick Leave) Amendment Bill — First Reading Summary – New Zealand Parliament (www.parliament.nz).
[3] (Hon Brooke van Velden) Holidays Act Reform: Further Policy Decisions (Office of Workplace Relations and Safety, May 2024).
