BackAnnual Leave Overhaul: Here’s How the Way You Earn Holiday Pay Will Change
The current law’s being called ‘broken’ with 'enormous complexity’ and ‘widespread non-compliance’. Proposed changes will see the way you accrue annual and sick leave change, and casual workers will no longer get it - instead getting a 12.5% payrise.
Ministers have given the green light to overhauling the way workers earn their annual and sick leave entitlements.
The current Holidays Act - passed in 2003 - will be scrapped completely and replaced with an ‘Employment Leave Act’ that aims to simplify the way leave is calculated.
Workplace Relations and Safety Minister Brooke van Velden calls the proposal a “win for workers, a win for businesses, and a win for New Zealand”.
The current law is essentially a one-size-fits-all system and van Velden says fixing it has been the number one priority for the business community for the last four elections.
“My proposal is to use a more bespoke approach that will better cater for New Zealand’s range of working arrangements,” she says.
What’s changing?
Annual Leave
Currently, employees are entitled to a minimum of 4 weeks’ annual leave, but only after they’ve been with that employer for a year.
Under the new proposal, annual leave starts to accrue from the first day on the job and is proportional to the hours worked.
That rate is 0.0769 annual leave hours per hour of work. It equates to the same as 4 weeks per year.
So why change it then if it’s the same? Van Velden says it’ll be easier for employers to calculate and means employees don’t have to wait a year before getting a day off.
Using leave will be hourly-based instead of day-based. So if you need two hours off, you can use two of your annual leave hours instead of an entire day.
Cashing up Annual Leave
A small change will allow workers to cash 25% of their leave balance.
While it’s currently limited to one week per year - which is 25% for those who only earn four weeks of annual leave - it will benefit those with large leave balances.
Businesses will benefit from a reduced leave liability on their balance sheets.
Sick Leave
Like the proposal to annual leave, the government wants sick leave to accrue from an employee’s first day of work.
Currently workers get a lump sum of 10 sick days per year but only after they’ve been on the job for 6 months. This applies whether you’re full time or part time and every year, another 10 days of sick leave is added.
The new plan would see sick leave accrue from day one at a rate of 0.0385 sick leave hours per hour of work - which for a full time worker would be 10 days per year.
But here’s the kicker: part time employees will see a big reduction in leave entitlements under the new system.
They currently get 10 days per year regardless of the part-time arrangement. A worker doing 2 days per week will now get a proportional 4 days of sick leave per year.
Like annual leave, using sick leave will also be hourly-based rather than having to take the entire day off.
Family violence and bereavement leave
Like annual leave and sick leave, both family violence and bereavement leave accrual will begin from the first day of work.
Introducing the LCP or ‘Leave Compensation Payment’
Casual workers - who aren’t on a part time or permanent contract, and not eligible for annual or sick leave - will be compensated.
Their take-home pay will be boosted by 12.5% in what’s being called a ‘Leave Compensation Payment’ (LCP).
Currently, casual workers get an 8% payment called PAYG (pay-as-you-go leave) but the new LCP includes sick leave compensation too, which is why it’s higher.
For full-time unsalaried workers, any additional hours worked will see them earn the LCP instead of those extra hours accruing annual and sick leave.
In the Cabinet paper, van Velden says it’ll likely cost businesses more initially.
“The shift to LCP for casual employees will likely increase leave-related costs for the employers currently paying the PAYG (pay-as-you-go leave of 8%) to casuals,” she says.
Parental Leave changes
Those returning from parental leave will benefit from higher payments.
They’ll still accrue annual leave while on parental leave, but when they return to work and take annual leave, it’ll be paid out at their full salary rate instead of being based on what they earned while on parental leave.
Workers who earn commission or bonuses
The changes won’t be welcome news to those who rely on commission or big annual bonuses for a large portion of their income.
Currently, the calculation of annual pay for this group of workers takes into account the base salary as well as any commission or bonuses on top of that.
But the changes will mean that their annual leave payments will be based on the base salary only, not on any of the additions.
Compliance concerns
There will be a 24-month implementation period between the current system and the new laws, which van Velden says should give businesses enough time to adapt.
There will be a cost to businesses to make these changes, and there’s also the requirement to keep previous employment records for 6 years - meaning the old payroll systems might have to hang around just to access them.
There’s also a problem raised in the Cabinet paper that there’ll be serious compliance problems at the Ministry of Education which won’t be able to transition to the new system for up to 10 years.
The current system is based on the controversial Novopay payroll, which saw thousands of erroneous payments over many years during the 2010s.
Source: Stuff