The New Zealand Holidays Act legislation is complex to say the least. We’re here to make it easier. Over the coming months we will release mini videos covering specific areas of the Holidays Act in bite sized chunks, to help you better understand how it works.

Here is the first edition, covering the calculation of the Average Weekly Earnings (AWE) rate

Calculating Average Weekly Earnings on Biteable.

By now, almost every New Zealander will have had some level of experience with the Holidays Act 2003. Whether working in Payroll, HR or Finance or being an individual who has been impacted by miscalculations.

You may also be aware that there has been a taskforce in place for some time, working on the review and subsequent recommendations to improve the act by simplifying it and providing better guidance on how to apply it.

Here is the latest from the MBIE website and below we take a peek into some of the proposed changes and what they could mean for organisations.

Some key takeaways

• Annual leave must be held and taken / reduced in units or portions of weeks. It is good to see this be firmly stipulated in legislation for clarity. Hopefully this will mean that software vendors will ensure they comply with this.
• The definition of a week for employees with variable hours and no set rosters or contracted hours are to apply a 13-week average of hours worked to determine a week. Again, it is good to have a fixed method in which this can be calculated and know that it complies with new legislation. I would question, however, whether it is the most accurate way of determining a week in the absence of a roster or contracted hours and would argue that there are better ways and that in some cases this calculation will advantage and in others disadvantage employees.
• Two new rates are being introduced to calculate payment for annual leave.
  1. Ordinary Leave Pay – what the employee would have earned if they had been at work on the day(s) in question. This is one I am somewhat struggling with. Per proposed clarification we are meant to be calculating leave entitlements and reduction in weeks, we have 2 other weekly rates but this one needs to be worked out on a day by day basis. I would be concerned over how to calculate this in general, but even more so for variable employees and furthermore how to compare to the two other weekly rates to find the higher of the three.
  2. Average Weekly Earnings over a 13-week period
• Two new rates for calculating FBAPS leave, and employees should be paid the higher of the two
  1. Ordinary Leave Pay – what the employee would have earned if they had been at work on the day(s) in question. It is good to see some common rate calculations applied across Annual Leave and FBAPS leave. The concern here would be how this can be calculated for highly variable employees, for whom currently we only have to calculate ADP. Under the new proposal it means both rates would have to be calculated in all instances and the higher chosen.
  2. Average Daily Pay over the last 13 weeks
• The definition of Gross Earnings is made clear: “Include everything except reimbursements”. At least it will be easy to determine what should be included. It does mean, however that gross earnings will include more earnings than before and likely cause an increase in liability.
• What I like about this new proposal is that there will no longer be an ORD4 (section 8.2) calculation. With that we no longer have to worry about what is regular and what is not, and we no longer have to decide whether to use section 8.1 or 8.2
• Parental Leave returnees will now continue to be paid for their annual leave at the higher of the 3 proposed rates. This will simplify the process and make it easier to explain to employees how their leave is paid when they return. It does mean an increased liability to the company.

There are several other (22 in total) recommendation from the taskforce. The above page and the various documents accompanying it are worth a read if you’d like to get a heads up on these matters.

Conclusion

There are definitely some areas that will become a lot clearer given these proposed changes. This will, however come along with increased cost to businesses, not only from a liability perspective but also from a system and people change management perspective.

I can only hope that the change will be approached methodically and that there will be very clear guidelines on how the transition is to work, what compliance looks like under the new legislation and what needs to be done to rectify any historical miscalculations to put this to rest once and for all.

One thing is for sure. The payroll landscape is ever-changing, and we all need to make sure we are well educated and ready to deal with it.

The question seems simple; however we see this being answered incorrectly time and time again, with the potential effects not only disadvantaging the employee, but also bearing unnecessary costs to the employer.

Before we answer the question, let us look at why this matters so much

1. Casual employees are paid Annual Leave PAYG and do not become entitled to Annual Leave
2. Because there is no expectation of future work, and each engagement is short-term, there can be no grounds for a personal grievance in relation to dismissal
3. There are no guaranteed hours of work for casuals
4. If casuals do not work, they don’t get paid (apart from specific scenarios where FBAPS leave applies

What is the potential impact of the above?

With remediation work and having read many Enforceable Undertakings, if a casual is not a true casual, they should become entitled to annual leave. MBIE will then require that the employee be granted back any leave they should have become entitled to from the date they are deemed to have become permanent. The company can, however, not claim back any of the PAYG already paid to the employee, hence bearing double the cost effectively.

If employment courts deem an employee a not to be a casual, then that employee can have grounds for unfair dismissal and a whole range of other rights they would not have had as a casual.

Because zero-hour contracts are no longer legal (since 2016), if an employee is not deemed to be casual, they must be guaranteed a certain minimum number of hours.

Non-Casual employees should always be entitled to FBPAS leave per the holidays act 2003

How do the employment courts determine a casual employment status? 

“In the absence of any definition of casual employment in the Employment Relations Act 2000 the Courts have assessed whether employment is casual against the following characteristics:

• engagement for short periods of time for specific purposes
• a lack of regular work pattern or expectation of ongoing employment
• employment is dependent on the availability of work demands
• no guarantee of work from one week to the next
• employment as and when needed
• the lack of an obligation on the employer to offer employment or on the employee to accept any other engagement1
• employees are only engaged for the specific term of each period of employment.

The question of whether or not a person has been employed as a casual employee depends on the mutuality of the intention at the outset of the employment and the nature of the work including its regularity, its hours and the obligations imposed on the employee.”

Casual work can evolve because of employer oversight into permanent employment, such as replacing an employee on long term leave. A case that related to this situation is Muldoon v Nelson Marlborough DHB

Casual entitlement to FBAPS leave

This falls under the Holidays Act 2003, and although the act does not talk about casual employment specifically, the following rules may be applied as they will likely affect casual workers (Taken from Section 63 of the Holidays Act). Also applies to Family Violence Leave (Section 72D).

Entitlement to sick leave and bereavement leave
(1) An employee is entitled to sick leave and bereavement leave in accordance with this subpart—
(a) after the employee has completed 6 months’ current continuous employment with the employer; or
(b) if, in the case of an employee to whom subsection (1)(a) does not apply, the employee has, over a period of 6 months, worked for the employer for—
(i) at least an average of 10 hours a week during that period; and
(ii) no less than 1 hour in every week during that period or no less than 40 hours in every month during that period.

Conclusion

As you can see, the answer to this question can bear large impacts on both employees as well as employers, so getting it right is important.

We recommend that, if you do not have something in place to monitor this, you engage with your payroll or time and attendance software vendors to see how they can help you monitor and report on casual employment.

This is something that requires ongoing monitoring and adjustments to payroll settings in order to be compliant and cannot be seen as a set and forget configuration.

As I am sure everyone recalls vividly, 2020 was a year to remember. The government wage subsidy scheme helped many employers stay afloat, and importantly retain as much of their workforce as possible.

It is great to have seen so many organisations legitimately apply for the subsidy and some who have realised they should not have been entitled, have contacted MSD and refunded the money.

MSD have been conducting audits on the application of the scheme for some time now, to ensure companies were actually entitled and are now at a stage where the first four cases are likely to go to court.

“Ministry of Social Development (MSD) spokesman George Van Ooyen told Stuff one final request for repayment would be made to each, advising of the ministry’s intention to begin civil action.”

“If MSD is not satisfied with the responses, proceedings will be filed in court,” he said.

Covid-19: Govt preps to take first four suspected wage subsidy abuse cases to court | Stuff.co.nz

Are you ready for your audit?