Holiday non-compliance significant business issue
Column written by Dunedin Partner John Farrow, published in the business section of the Otago Daily Times on Saturday 7 April 2018
The New Zealand Police have recently made Holidays Act non-compliance remediation payments totalling around $39 million, with more to come, as it waits for the implementation of its new payroll system.
The media has also reported a number of cases where employers have been penalised for non-compliance, as well as having to make remediation payments. The majority of these cases have been driven by labour inspectors, whose role is to make sure that workplaces meet at least the minimum standards and requirements of employment law.
Employment New Zealand (Ministry of Business, Innovation and Employment) recently released an updated guidance document on the Holidays Act 2003 which is available online. It explains the key provisions of the Holidays Act and provides constructive examples of how the Act is to be applied.
The guidance document was produced because it became apparent, across a survey of employers, that non-compliance with the Act was a significant issue. There are some key messages for employers.Even if employees are in agreement, employers cannot contract out of their responsibilities under the Act.
To ensure compliance, an employer is required to engage in good faith with its employees and payroll staff on an ongoing basis.
If the employer has communicated with its employees in good faith but is still non-compliant, the labour inspector is likely to look much more favourably on that non-compliance.
Payroll software providers can make managing employees’ holiday and leave provisions easier but it is still the duty of the employer to make sure that payments are correct.The employer needs to make sure that the data used in calculating leave is complete and accurate.
Employers are legally required to keep accurate records for each of their employees.
This includes details of current holiday and leave entitlements; dates of any annual holidays and leave taken; and the payment received.
Where there is a regular pattern of work, annual leave entitlements and payment can be relatively straightforward.
However, where the pattern of work is inherently unpredictable (perhaps because hours and days are highly variable from week to week) getting the payments right can be difficult.
Issues such as whether a holiday falls on what would otherwise be a working day; what payments should be included in earnings calculations and what payments are to be made on termination are very much fact-specific.
There are additional complexities when parental, sick and bereavement leave also need to be considered.
For example, an employee who becomes ill during pregnancy has the same sick leave entitlement as other employees.
It does not matter if the illness is related to the pregnancy or if it is a more general illness.
The guidance document contains a specific caution in relation to accrued holidays. Many payroll systems run an “accrual balance”.
While these may be useful as an estimate of an employee’s entitlement, they can often lead to non-compliance.
The guidance document strongly advises that annual holiday balances are kept in weeks.
That is because an employee’s entitlement to annual holidays is measured in weeks.
There are certain instances where holiday payments can be made as part of an employee’s regular pay.
However just because an employee is on a casual employment agreement does not necessarily mean that they will meet the criteria.
The labour inspectors report that this is a common cause of non-compliance.
Some businesses have a traditional close-down period, for example, at Christmas.
If the close-down period includes public holidays, the employee must be paid for those public holidays as if they would otherwise have been working days.
Even if an employee works for just part of a public holiday, they are entitled to a whole working day off as an alternative holiday.
There are a multitude of other complexities employers need to grapple with when it comes to holiday entitlements and payments.
If agreement cannot be reached between an employer and an employee, a labour inspector has power to make determinations.
The labour inspectors also have significant powers of inquiry and enforcement.
If in doubt, you should take specialist advice or consult with the Labour Inspectorate.
Getting it wrong can be costly.
Want to know more?
Please contact our specialist Employment and health & safety team