Out with the old, in with the new – Holidays Act reform

(By Jodie Orchard)

Long-anticipated reforms to the Holidays Act are coming, and here at SBS our HR team is rejoicing.

Since its inception, the Holidays Act 2003 has created layers of complexity, over-complicated formulas, head-scratching, moments of confusion, and countless hours of interpretation. However, with a raft of changes now announced and more detail scheduled for release in the near future, simplicity and relief finally appear to be on the horizon. Some of these changes may prove challenging for smaller businesses, but overall, there are clear upsides for both employers and employees.

Over a 24-month transition period there will be time to adjust employment agreements and payroll systems. There are still a lot of details to be revealed and we’ll have to wait for the final bill to see the entire picture, but in general terms, these are the wins as we see them:

Simplified annual leave formula

An hours worked model will now guide annual leave calculations rather than the old system of weeks, averages, and often inconsistent interpretations. This is particularly helpful to those with variable work patterns, an area which has always been difficult to interpret.

Fairer sick leave calculations

Sick leave will be proportional to hours worked, not a blanket 10 days after 6 months service. Employees will get this leave entitlement from day one of employment (as well as bereavement leave and family violence leave entitlements), and for casual staff this will mean sick leave will be proportionate to hours worked.

Use annual leave as you earn it

As well as not waiting 6 months for a sick day there will be no more waiting 12 months for annual leave entitlements. Employees will be able to use AL as it accrues, reducing employer liability and ensuring everyone can have a break in their first year of employment.

Cash out capacity increasing

Employees will be able to cash out up to 25% of their leave. Great news for those who have accumulated more than 4 weeks, and great for employers wanting to reduce their leave liability.

Simpler public holiday test

Public holidays will have a simple (50%) Ordinary Working Day eligibility test, which will make it much easier to determine who qualifies if your company follows a variable work pattern.

No more Parental leave penalty

Returning parents will keep their full leave entitlements, or not have it reduced by being on parental leave, where they used to have their annual leave recalculated on reduced earnings, often resulting in a lower leave balance. A positive change and another helpful tool for retaining talent.

Things to consider

·         How do you currently calculate leave? Conduct an audit of your day/week calculation method and assess how this will translate into the new hours-worked model.

·         Check your payroll system. Larger payroll platforms may handle the changes automatically, but older or smaller systems will likely require manual updating.

·         Prepare for the unified pay calculation method. While the method itself is simple, payroll systems will still need configuration to apply it correctly.

·         Update employment agreements. These will need to reflect the new entitlements, accrual methods, and remove outdated Act references.

These reforms are a big win for clarity and fairness in New Zealand workplaces. While implementation will take time, the outcome should mean simpler payroll, fairer entitlements, and fewer headaches for everyone involved.