The Holidays Act Taskforce has now completed its report, and the Government announced on 23 February 2021 that it has accepted all of the recommended changes. The changes will be introduced in early 2022, giving employers time to adjust their payroll systems and practices to ensure compliance. The changes proposed by the Taskforce are intended to make it easier for employers to calculate leave entitlements and pay, giving employers and employees certainty and transparency.
While employers will initially face increased compliance costs, the changes ought to ultimately make it easier for employers to calculate leave entitlements thus avoiding rectification claims and penalties.
The main changes which will be made to the Holidays Act 2003 are set out below.
Annual holidays will be paid based on the greater of ordinary leave pay and average weekly pay. Ordinary leave pay is an entirely new concept and means all payments which the employee would have received if the employee had been at work for the period in question. Average weekly pay is averaged out over 4, 13 or 52 weeks, whichever is the greater. Annual holidays will be calculated, taken, paid and held in weeks or portions of weeks. Employees will have the ability to take annual holidays in their first 12 months up to the amount they would have been eligible for, on a pro-rata basis.
The parental leave override calculation will be removed to address discrimination against parents who take time off to care for their young children.
Each day or part day of FBAPS leave will be paid based on the greater of ordinary weekly leave and average daily pay.
Eligible employees will be entitled to bereavement leave and family violence leave from the first day of employment and will be entitled to one day of sick leave from their first day of employment (with an additional day per month of employment until the full entitlement is reached after 4 months).
Employees will have the ability to take sick leave and family violence leave in units of less than one day.
A new test will be introduced for eligibility for family violence, sick and bereavement leave, and bereavement leave will be extended to include stepfamily, cultural family groups, siblings and children-in-law, aunts, uncles, nieces and nephews.
Public holidays will be transferred to days which are automatically treated as “otherwise working days” for employees, regardless of their working pattern. This will enable employees to transfer paid public holidays to days that are of significance to them, without being limited by their work pattern or lack of clarity about future rostering.
The ability for employers to use pay-as-you-go for employees on fixed term agreement of less than 12 months will be removed, and a more detailed definition will be provided for when PAYG can be used when a work pattern is “intermittent or irregular”.
There has been a lack of clarity about whether certain forms of payments should be included in the calculation of annual holidays and FBAPS payments. Employers are not always clear whether discretionary payments should be included. The definition of “gross earnings” will be used as the basis for leave calculations and will be amended to mean, “an employee’s leave payment should reflect all cash payments received, except direct reimbursements for costs incurred.”
The Taskforce noted the impact that this will have on employers moving forward, as it will mean that all commission and bonus payments will always be included in gross earnings. The Taskforce noted that employers will be able to adjust the quantum of any truly discretionary payments downwards, in light of the fact that such payments will form part of an employee’s gross earnings.
Closedown provisions in employment agreements will need to be amended to provide greater transparency and certainty for employees. In addition, the requirements that holidays are paid out at 8% and an employee’s anniversary date is reset (as held by the Employment Court in MetroGlass), will be removed.
Sale, transfer of a business
On the sale and transfer of a business, employees will need to be given a choice about whether to transfer all of their leave entitlements or have them paid out or reset.
Record keeping and payslips
Record keeping requirements will need to be updated to reflect changes to how leave entitlements are held, calculated and paid. Employers will be required to retain all holidays and leave records for six years (and longer where issues have been raised in good faith) and to make these available to employees on request in a format that can be understood by the employee.
Employers will also be required to provide payslips to employees in every pay period.
Employers can agree entitlements which are no less favourable
Employers and employees can agree to different arrangements provided such arrangements meet, at a minimum, the standards set out in the amended Act.
You can view the final report of the Holidays Act Taskforce for a full analysis of the changes which will be made to the Holidays Act here. Please contact us to assist you in updating your employment agreements, policies and payroll practices to ensure compliance with these changes.