Holidays Act to be overhauled

23 Mar 21

The Government has accepted recommendations to make the Holidays Act clearer and provide greater certainty to employers and employees.

Following a joint request from employers and unions, the Government established a Taskforce to suggest improvements to the Holidays Act 2003 (the Act).

Although the Taskforce was set up in 2018, and reported its recommendations in 2019, the Government has just published the recommendations along with its response, which is to approve the recommendations in full.

This is positive news as the Act has long been a source of frustration for those tasked with its interpretation and application.

The recommendations are expected to take effect in early 2022, as amendments to the Act.

The recommendations

The Taskforce made 22 recommendations focused on making the Act clear, certain, and simple to apply.

Some of the significant recommendations include:

  • Introducing a new, less complex methodology for calculating holiday pay, which will make calculating holiday pay simpler for those who work variable work patterns.
  • Allowing employees to take annual leave in advance on a pro-rata basis.
  • Removing the “parental leave override” to ensure that the value of annual leave of parents returning from parental leave is not diminished.
  • Removing the ability to pay employees’ holiday pay “as you go” for those engaged on fixed-term agreements of less than 12 months duration.
  • Removing the ability to require employees to be available or “on call” for work during periods of annual leave.
  • Providing sick leave from the first day of employment, with the entitlement increasing by a day at the completion of each month of work, until the full entitlement is reached.
  • Allowing sick leave and family violence leave to be taken in units of less than a day, with a minimum unit of a quarter of a day.
  • Extending the list of people for whom bereavement leave applies to include stepfamily, family by marriage, cultural family groups, and extended family.
  • Implementing a new test that determines which employees are eligible for sick, bereavement and family violence leave.
  • Giving employees the option of choosing to transfer all of their leave entitlements to the new employer, or to have them paid out and reset in the event of a sale and transfer of a business.
  • Requiring employers to keep more comprehensive leave records that show how leave entitlements and calculated, paid, and held.
  • Requiring employers to provide pay slips to employees for each pay period.

While the changes are likely to simplify the annual leave calculation and application process, they are also likely to result in increased compliance costs (at least initially) and an increase in the overall cost of leave entitlements to employers.

It is anticipated that these increases will be balanced by reduced risks of non-compliance, given the purported simplification of the Act. This remains to be seen however, and will be informed ultimately by the detail of the legislation, which is yet to be drafted.

The changes are particularly important to employers who utilise flexible and variable working arrangements. The changes to the Act will change how you record and pay holiday pay for these workers.

It is important that those involved in administering leave entitlements understand the changes before they take effect, and have robust payroll and record keeping systems in place in anticipation of the changes.


Want to know more?

We will provide more information on the amendments to the Act as it becomes available.

If you have any questions or would like to discuss the amendments to the Act, please contact our specialist Employment Team.


PDF version: Holidays Act to be overhauled

This article was included in Edition 11 of our employment newsletter – Employment News which you can read here.