News

The Complexities of Calculating Leave and Holidays Act reform

The complexity of the Holidays Act 2003 has been loudly trumpeted for many years amongst practitioners in the legal, human resources, and payroll spaces.  A Taskforce was set up in 2018 to simplify the Act, and in 2020, the government endorsed all recommendations.  The current government is set to review and enact the changes albeit modified reflecting the current governments priorities.

Due to the complexity, we will provide a rolling review of the types of changes that have been talked about, but not yet enacted into legislation. 

Calculating Annual Leave and other leave

The search for simplification of calculations for payment of Annual leave, Family bereavement, Alternative day, Public holidays and Sick leave (FBAPS) require an understanding of the current process, to understand the changes needed.

Leave entitlements

An Annual Leave entitlement for a permanent full-time employee is four weeks paid holiday after 12 months continuous employment with an employer.

Sick Leave entitlement occurs after 6 months of continuous employment and was originally 5 days, then became 10 days.

Bereavement Leave entitlement occurs after 6 months continuous employment and an employee gets 3 days for close family members, and 1 day for everyone else, if the employer agrees.

Family Violence Leave entitlement occurs after 6 months continuous employment and an employee gets 10 days after 12 months (which is not accumulated).

Public Holiday entitlements start immediately once employed and there are 11 days of entitlement.

Alternate Day entitlement is provided on an otherwise working day meaning provision is made for an employee to take an alternative holiday on another day of work.

The entitlements are calculated:

1. Average Weekly Earnings (AWE)/ Relevant Daily Pay(RDP) are total gross earnings over the past 52 weeks divided by the number of whole or part days the employee worked during that period),
2. Ordinary Weekly Pay(OWP)/ Relevant Daily Pay(RDP) made up of ordinary pay plus any overtime, allowance, commission, and incentive payments,

In contrast, the calculation of annual leave for casual employees is pay-as-you-go (paid at the time of payment of wages) and is based on an 8 percent gross earnings accrual formula. It means you are paid annual leave, using the formula, each pay day, whenever that arises. This issue will be further developed in the next article.

Finally, Annual Leave is based on the greater of AWE and OWP; Sick Leave, Bereavement Leave, and Alternative Leave is calculated using RDP and if that cannot be used, then ADP; and an employee working on a Public Holiday gets 1.5 of RDP, and if that cannot be used, then 1.5 of ADP. 

The Reforms (and search for simplification)

Simpler calculations?

The Taskforce pondered how to calculate the above leave in a simpler fashion.  They were trying to find one formula for everything but ended up with two parts instead largely because one calculation would not cater to two different situations when thinking about the type of leave under analysis. 

For example, annual leave and sick leave are taken as a proportion of a whole, meaning you have an entitlement, and you deduct from that entitlement to calculate the leave amount.  In comparison, other holidays like an alternative day or bereavement leave are event driven to be enacted. Thus, the two types of calculations were by proportion and events.

Competing interests

In debating this issue, there were conflicting views about how to go about it. The unions did not want employees to lose anything in this process and so a process of averaging was initiated, which meant, in effect, that a process of unders and overs was used to create the average. The impact was that unders were not acceptable but overs were.

Complexity challenges

This meant that there were 3 calculations applicable for annual leave (the original recommendations), the greater of which would be chosen at any one time.  The computerised complexity of these calculations may not have been seen by others and only understood by those in the know but it became unduly complex and designed to ensure no employee was paid under a cent with the changes.  The lack of give in this process meant that agreement could not be reached by the parties and essentially resulted in the stalling of the legislative changes.  The problem is exacerbated by a Parliamentary counsel office who draft actual law to turn all of this into words that people could understand for compliance purposes.  This is no easy task.

Forseeing more change to this legislation before enactment

It appears there will be a number of new tests that will creep into the new legislation regarding how we will decide what criteria there are for sick leave, bereavement leave, and family violence. They will look at the sort of evidence needed, the sort of criteria that needs to be met to ensure the forms of leave are being used for the right purpose.  This perspective could probably address the current use of sick leave which is dependent on a medical certificate provided by a medical practitioner. From a practical level, the employer’s procedures can be stymied by employees that use sick leave to avoid accountability and responsibility, a situation not improved by advocates or representatives taking advantage of these procedures by calling them bad faith and initiating grievance procedures unnecessarily.

If you have any legal or HR questions, please contact our adviceline at 0508 656 757 or email us at info@business-south.org.nz 

Article written by Senior Solicitor, Ronda Tokona

based on a webinar conducted by Paul Mackay, BNZ