David Grindle: Holidays Act changes are coming in 2023

Changes will need to be made to employment agreements, workplace policies and payroll calculations and systems Photo /123rf

OPINION

Employees, employers, employment advisers and politicians are unanimous in their frustration at trying to implement and understand the Holidays Act 2003. Good news is on the horizon though – in 2023 significant and highly anticipated changes to the Holidays Act will be implemented that should improve compliance and understanding with the Act.

The changes to the Holidays Act will make it easier to calculate entitlements and pay, giving employees and employers certainty and transparency. A simpler approach to calculating holiday entitlements should prevent the kind of non-compliance that between 2012 and 2020 resulted in more than 227,000 employees in New Zealand having to receive arrears payments as a result of short payments, totalling in excess of $237 million.

The Government first indicated the changes would occur this year, but has now advised that the law change will occur in the first quarter of 2023. The most significant alterations include:

• A new way of calculating annual holiday payments. Previously annual holiday payments were paid at the greater of ordinary weekly pay or the average weekly earnings over the past 12 months. The proposed changes add one additional calculation – 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. Previously many types of leave required employees to have worked for the employer for a certain period of time before they can take the leave. Under the changes, family violence leave, bereavement leave, alternative days, public holidays and sick leave will be available from day one of employment and annual leave will be available to employees on a pro-rata basis.
• Pay-as-you-go (PAYG) details have been clarified to remove confusion over how PAYG applies to intermittent or irregular work. The new recommendations will have a clearer definition of this type of employment. Employers will no longer be able to pay PAYG for employees on a fixed-term contract of less than 12 months.
• Parental leave will no longer affect annual leave pay on return to work. Previously employees who took parental leave received reduced annual leave pay for 12 months after returning to work. This is known as the parental leave override. Under the proposed changes the override will be done away with and returning employees will be paid the full rate for annual leave.

The changes to the Holidays Act will mostly be well received, but yet again there is another additional cost to employers. The ability for the employee to take leave from the commencement of the employment relationship is a burden for employers and a cost that will be carried on balance sheets.

Although the proposed changes are still speculative, the amendments will become clearer later in the year and it is important that employers understand the changes and how they affect their employees. Changes will need to be made to employment agreements, workplace policies and payroll calculations and systems. We’ll discuss this topic again once the exact nature of the amendments are known.

David Grindle is the director in charge of the employment law team at WRMK Lawyers. He has practised in this area of the law for 17 years