How changes to the Holidays Act could affect your leave

Friday, 7 June 2024

The Government says proposed changes to the Holidays Act will make it easier for businesses to calculate and correctly pay leave.

But what’s the problem with the current law and how could the planned changes affect you?

Here’s what you need to know.

Why are they looking at changing the rules?

The Holidays Act is a complex piece of legislation with a history of problems since it came into effect in 2004.

Thousands of employers including fast food chains, recruitment firms, police, district health boards and, ironically, the Ministry of Business, Innovation and Employment, have all been caught out by its complexities.

That’s resulted in hundreds of thousands of people being underpaid, with money owed ranging from a few dollars to more than $10,000.

If it’s been causing headaches for so long, why hasn’t it been fixed already?

The last Labour Government tried. A taskforce set up to suggest improvements made 22 recommendations, including new methods for calculating the amount of leave entitlement an employee used when they took time off, and new leave payment formulas and definitions.

Legislation was being drafted before the 2023 General Election, but the government changed before a bill was introduced.

So, what’s this Government’s plan?

On Wednesday, Minister for Workplace Relations Brooke van Velden unveiled proposed changes to the act, including switching from an entitlement system to an accrual system for annual leave.

That wouldn’t affect leave entitlements (many employers already use an accrual system and you’ll still be entitled to four weeks’ annual leave after 12 months), but it should make life easier for payroll staff and reduce costs for employers.

They’re also proposing a pro-rata system for sick leave, “to better reflect how much an employee works,” van Velden said.

That would mean the amount of sick leave workers were entitled to would depend on how much they worked.

While an employee working a full work week would receive the current statutory 10 days sick leave, someone working fewer hours would receive a proportion of that entitlement, van Velden said.

What that proportion might be would be up for discussion during consultation.

That’s true. However, they’re also more likely to work multiple jobs which could, under current rules, mean they’re entitled to more sick leave.

In one case she had heard of, van Velden said a person worked two jobs part-time, so was entitled to 20 days sick leave when most full-time workers were entitled to only 10.

Or, as another example, someone working two days a week or about 100 days a year, is currently entitled to the same sick leave as someone working five days a week or closer to 250 days a year.

And then you have the person who works two hours a day, five days a week and is also entitled to 10 days sick leave. At the moment, the Holidays Act refers to sick leave in days, not hours, with no clarification on what constitutes a day or how sick leave should be paid in a case like this.

OK, so there are some issues. What happens next?

A draft bill to tackle those issues will go out for targeted consultation in September. If you’re interested in taking part, you have until July 8 to register via the MBIE website.

Van Velden said she wanted to hear from a range of people likely to be affected by the legislation, including employers and employees from different sized businesses.

“I believe it is important to hear from small businesses in particular, given small businesses will adopt a range of working arrangements and often do not have the same payroll infrastructure as larger organisations.

“We need the act to be workable for everyone, from the multi-national corporates to the small-town family run restaurants.

“My priority with these changes is to increase certainty and reduce complexity. This is about achieving sensible and workable legislation.”