Holidays Act Changes should end expensive payouts to short-changed workers
Expensive and time-consuming errors in holiday pay should be a lot less common after legislation, which also entitles new employees to sick leave from their first day, is introduced next year.
Jetstar is the latest company to repay staff millions of dollars after breaches in relation to annual holiday pay calculations, public holiday entitlements, and payments for sick and bereavement leave. Other employers tripped up by the rules included Flight Centre, Te Papa, McDonald's, and the Ministry of Business, Innovation and Employment (MBIE).
District Health Boards were also trying to calculate how to reimburse more than 200,000 staff wrongly paid under the Holidays Act, with issues dating back to 2010.
Changes to the law are due to be introduced to Parliament mid-2022, followed by submissions and select committee examination before taking effect.
“There are quite a few changes, but the overall thing is just to make it simpler and to fit better with our modern workplaces where people work quite variable hours and have a whole lot of different arrangements,” said employment lawyer, Buddle Findlay partner Hamish Kynaston.
There were a number of reasons employers had not been compliant with the Holidays Act, but complexity was a key.
“They’ve had to go back six, seven, eight, nine, 10 years, recreate their payroll for that period, and the whole exercise in itself is hugely expensive, particularly for large employers, and then there’s literally millions and millions of dollars in remediation,” Kynaston said.
One of the recommendations was to entitle employees to take holidays in advance, on a pro rata basis calculated on how long they had been employed.
“Right now a normal person under the Act gets four weeks a year, and you don’t actually have an entitlement to take that leave until you’ve served that full year. Most employers will give it to the employee, they say that’s fine, you can take it in advance.”
Bereavement leave, sick leave, and family violence leave will also be available from day one.
“Employees will be glad to know that when their mother dies two weeks into a new job they can actually take [leave]. Many employers would say sure, take what you need, but there’s a lot of employers who don’t.
“Like anything, a lot of the employment legislation is aimed at the bottom end of the labour market, as protectionist legislation, it’s about ensuring minimum standards,” he said.
Rules around holiday pay for casual or intermittent employees would be simplified.
Discretionary payments, for example for senior executives or people earning commission, would also be affected.
“The point being that when you take holidays it should reflect what you’re paid in a given year,” he said.
“That’s one of the key things employers will need to think about in terms of planning and how they set up their incentive schemes, commission payments, bonus payments, that type of thing.”
Holiday pay calculations had always been complex, but the problems intensified as workplaces and employment became increasingly flexible and complicated, he said.
It could be as simple as a new payroll manager starting, and making a change to how some things were done.
“If the systems are set up incorrectly with incorrect rules you’ve got these big automated payroll systems, and it only takes you to get one rule wrong, and you’re paying 3000 employees incorrectly for however many years.”
The last Holidays Act shakeup was 2003. The current proposals would mean significant changes to employers’ payroll systems, and there was likely to be a long lead-in time.
There would be some additional cost for employers, but it would also reduce the chance of overpaying employees, he said.
Another key piece of employment legislation being introduced next year is the Fair Pay Agreements Bill.
The Government plans to implement the new mechanism for bargaining to set binding minimum terms and conditions across an occupation or industry. There was likely to be four or five bargaining rounds per year, so not every sector would be covered right away.
Earlier in December, BusinessNZ rejected the Government’s offer to be the default bargaining party for employers, a key role in the scheme.
It is now June 2023 and everything has gone quiet around these changes. It has not been passed into Law yet and it will not be retrospective, so any issues that occurred prior to its Enactment will still need addressing.