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.
- 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.
- 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
- 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.
- 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.
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.