Decision highlights importance of proper holiday leave administration
The Employment Relations Authority (ERA) recently dealt with a case where workers questioned their employer's practice of paying annual leave entitlements as lump sums and alternative holiday arrangements.
Two workers raised concerns about receiving holiday pay in December each year instead of taking actual paid leave, and about how they were compensated for working on public holidays.
The case explored whether employers can credit past payments against current holiday pay obligations.
The business operated multiple sushi stores in Auckland through different companies and a partnership structure. In August 2021, two workers from one store approached the labour inspector about their concerns.
The employer had been paying 8% of wages to employees each December as a lump sum, intending to cover their annual holiday entitlements. Workers could then take unpaid leave throughout the year.
The business owner explained that some employees, particularly part-timers, preferred to work and earn more money, getting paid out at the end of their employment rather than taking holidays. However, records showed employees sometimes only took one or two days of leave annually.
Under the employer's system, staff who worked on public holidays received time-and-a-half plus an additional payment meant to cover their alternative holiday entitlement.
A closer look at payroll records revealed the additional payment was calculated based on average hours worked over the previous eight weeks. This meant workers might receive payment for fewer hours than they actually worked on the public holiday.
The labour inspector issued seven improvement notices in January 2023. The employer admitted many breaches but wanted to count previous payments against what they now owed workers.
"[Workers] were deprived of paid rest and recreation time. They should not be financially disincentivised from taking leave. Taking leave without being worried about your finances is important," the Authority noted in examining the situation.
The employer argued there was no legal requirement to pay twice: "[The employer] does not accept that there is a requirement to pay as if payment has not already been made."
A labour consultant estimated the cost of fixing these issues, covering records for over 600 former employees and current staff going back six years, could reach $100,000.
The Authority explained its position through key provisions of the Holidays Act: "An employee's entitlement to annual holidays remains in force until the employee has taken all of the entitlement as paid holidays; or been paid out under section 28B for the entitlement in the entitlement year."
The decision emphasised protecting minimum entitlements: "Given four weeks of (paid) annual leave are a minimum entitlement provision under sections 5 and 6 of the Holidays Act, the Authority should not condone a remediation approach that proposes to exclude, restrict or reduce an employee's entitlement."
The Authority confirmed all improvement notices, with minor changes to one notice regarding specific payment figures. The employer would need to recalculate and pay holiday entitlements without subtracting their previous payments.
