What you need to know about the new Holidays Act

The Holidays Act of 2003 has been a source of frustration for payroll departments all over New Zealand. The ambiguous wording of the Act led to a host of businesses having to make arrears payments that totalled millions of dollars. Ironically, even the Ministry of Business, Innovation, and Employment was caught up in the fiasco dubbed the Holiday Pay Crisis.

In 2018, a task force was put together to make recommendations on changing the act and the recommended changes were accepted in February, 2021. Though they are still subject to the parliamentary process, 2023 should see the largest overhaul of the Holidays Act in 20 years come into effect in Aotearoa.

The changes are largely meant to address the ambiguity that has led to non-compliance when calculating holiday entitlements.

Two years ago, when the government accepted the Holidays Act Taskforce’s recommendations, minister for workplace relations and safety Michael Wood told the media, “Changes to the Holidays Act are going to end a very long period of confusion, underpayments, and big settlements that have plagued the sector over the last 16 years.”

Alice Milne, an associate at Mactodd Lawyers, told HRD, “I think there is good intent and there are some things that are going to be clarified; for example, the definition of gross earnings including all payments made.”

“But if there continues to be ambiguity there will continue to be non-compliance.”

Catching up with the contemporary workplace

Milne explained that much of the non-compliance has been blamed on payroll software that is very rule-based and doesn’t necessarily reflect the reality of today’s working environment.

The world of work has changed. With flexible working practices, an employee’s shifts can change weekly or even daily, while payroll technology is generally marketed as an all-in-one, set-and-forget solution that doesn’t necessarily reflect todays working practices.

“There needs to be a level of understanding that calculations aren’t quite that simple,” she said. “HR managers need to understand the complexities of their payroll system and the actual functions and methods that system is set up to complete, and they need to be conscious that payroll systems need to be constantly monitored.”

“I think what has been done is somewhat of a patchwork solution and it's possible that more work could be done to reflect the flexibility in today's working arrangements,” said Milne.

4 major changes

Here are four major changes that HR teams need to watch as the new Act moves through parliament:

Calculating annual holiday payments: Previously, annual holiday payments were calculated by ordinary weekly pay or the average weekly earnings over the past 12 months. The proposed changes mean that annual holiday payments can also be paid at the average weekly earnings over the past 13 weeks.

Employees will be entitled to some types of leave sooner: In the Holidays Act 2003, accessing types of leave required employees to have worked for the employer for a period of time before they can use the leave. The new changes mean certain types of leave will be available to employees from the day they start their employment. This includes family violence leave, bereavement leave, and sick leave.

Pay-as-you-go details clarified: The way pay-as-you-go applies to intermittent or irregular work has been clarified. The new Holidays Act means employers will no longer be able to pay pay-as-you-go employees on a fixed-term contract of less than 12 months.

Parental leave will no longer affect annual leave pay after an employee returns to work: The parental leave override has been scrapped. Under the proposed changes the override will be done away with and returning employees will be paid the full rate for annual leave.