Cabinet gives the greenlight to repeal and replace the Holidays Act 2003

Workplace Relations and Safety Minister Brooke van Velden has announced Cabinet has agreed to repeal and replace the Holidays Act 2003 with a new Employment Leave Act. Van Velden released the proposed changes and advised the ambition to pass a new Act by the end of term remains on track.  

A summary of the key changes proposed is set out below.

Hours based annual leave and sick leave

Currently, employees are entitled to four weeks’ annual leave after twelve months’ continuous employment, and 10 days’ sick leave after six months. Provided employees meet the eligibility criteria, the amount of leave they are entitled to is the same, regardless of whether they work full-time or part-time.

Under the new system, employees would become entitled to annual leave and sick leave from day one, in direct proportion to their contracted hours of work. The leave would accrue at a rate that reflects the number of hours they work in a week.

Employees would also be able to take part days of annual leave and sick leave, as it would be taken in hours (as opposed to days).

Leave entitlements during unworked periods

Currently, employees can still accrue leave during periods of paid and unpaid leave.

Under the new system, annual leave and sick leave would accrue when an employee was on paid leave under any legislation and when on parental, jury and volunteers leave. Leave would not accrue when a worker was receiving ACC or when on any other unpaid leave.

Calculating and cashing up annual leave

Currently, annual leave balances automatically adjust to match an employee’s working week when their hours change.

Under the new system, leave balances would reflect hours actually worked in the past, without adjusting for increases or decreases in standard hours. Employers would no longer need to monitor and re-calculate annual leave balances based on different working patterns.

A worker could also request to cash up 25% of their annual leave per year.

Working extra hours

Any hours worked on top of contracted hours would not accrue annual leave or sick leave. Instead, employees would receive an upfront payment of 12.5% for each additional hour worked.

Casual workers

Currently, instead of accruing annual leave, employers and casual employees can agree to an additional 8% on top of their earnings being “paid as you go”. Some casual employees can become entitled to sick leave, although in reality, it is infrequently paid.

Under the new system, casual employees would receive a compensation payment at a rate of 12.5% of ordinary hourly wage instead of accruing annual and sick leave.

Payment for leave

The current legislation provides differing calculations for different types of leave.

Under the new system, the same hourly leave pay rate would be used for all types of leave. It would be based on an employee’s base wage for the day of leave. Piece rates and fixed allowances would be factored in. Other components, such as bonuses, commissions and variable allowances would not be included.

Parental leave

Currently, when an employee takes leave during or in the 12 months after returning from parental leave, they are paid leave at the rate of their average weekly earnings for the preceding 12 months. This is likely to be low given the employee has not been working.

Under the new system, employees would continue to accrue leave during parental leave. Annual leave taken after returning to work would be paid at the same rate as leave taken at any other time.

Bereavement and family violence leave

Employees would be able to access bereavement and family violence leave from day one of employment (a change from the current position of eligibility after 6 months). The entitlements would remain days-based, however employees would be able to take part days.

Public holidays

Currently, it can be difficult to determine whether an employee who works infrequent days/ hours is entitled to be paid on a public holiday. The current eligibility test is whether it is an “otherwise working day” for the employee.

Under the new system, the test would be whether the employee has worked 50% or more of the relevant days in previous weeks.

Employees who do work on a public holiday would accrue alternative holiday hours at a rate of one hour for every hour worked on a public holiday that is an otherwise working day. Employees who work only some of their contracted hours would receive time and a half for hours worked, and leave pay for the unworked hours.

Public holidays

There is currently no legal requirement for employers to provide pay statements to employees (unless requested by an employee).

Under the new system, employers would be required to provide clear pay statements each pay period, itemizing pay and leave in a transparent and easy to read way.

Summary

In general, the overhaul of the Holidays Act is welcome news for many. Stakeholders will have the opportunity to provide specific feedback on the proposed changes at the Select Committee stage.

Hon Brooke van Velden has stated there would be a transition period after the legislation was passed into law, to allow employers and payroll providers to get up to speed. An extended transition period is expected to be provided for the education sector which has signaled it may take up to 10 years to overhaul the schools’ central payroll system and get it to a place where it can comply.

Want to know more?

If you have any questions about the proposed changes, please contact our specialist Employment team.