Holidays legislation: Let's make it fit for purpose

Holidays Legislation 

With the holiday season upon us, and the number of cases of significant underpayment of holiday pays that have made headlines this year, it seems appropriate to argue the case for reform of legislation which has generated far more than its fair share of litigation and confusion.

The fact that problems extend across a wide range of businesses and government departments – even the Ministry of Business Innovation and Employment (MBIE) itself – clearly points to systemic failure rather than attempts by employers to short-change their employees.

Despite several previous attempts at reform, the Holidays Act, for most, remains frustratingly confusing and difficult to apply across a range of circumstances – particularly those associated with flexible working practices that increasingly typify the modern work space. If the rules are not clearly understood by the people responsible for overseeing and performing the actual calculations required, then it is simply not fit for purpose.

The Government appears to acknowledge the concerns but feels incapable of moving forward because there is no unanimity of view amongst stakeholders as to how meaningful reform can be achieved without compromise. And so, the present situation remains – the confusion continues and with it the ongoing risks of underpayment and the burdensome and wasteful expenditure of resource in policing compliance.

Surely it doesn’t have to be this way? The key has to be in simplifying the calculation of holiday pay.

Let’s start by accepting the view that workers should not be penalised or disadvantaged by taking holidays but equally accepting that simplification could and should significantly reduce compliance costs and lead to better outcomes for everyone.

At the heart of the issue, I think, is the fact that there are still different rules for different types of leave – despite some welcome rationalisation over the years.

So, let’s start by standardising the calculation and removing the distinction between different forms of leave – for the sake of argument, let’s just call it ‘leave pay’. Let’s also adopt a daily rather than weekly basis for the calculation of all leave pay.

So, a daily rate of ‘leave pay’ would be applied to annual, sick, bereavement and public holiday/alternative holidays.

No change to the actual entitlements is necessary: just the way we calculate the pay.

I’m suggesting that leave pay would be calculated on the basis of what the employee would have received if they had worked on the day(s) taken as leave where that can be reliably established.

In situations of variable hours or payment, leave pay would be calculated on the average of the past 90 working days (or during the actual period of employment if less than 90 days).

The parties to an employment agreement would be permitted to agree on a notional daily leave rate but acceptance should not be a condition of employment.

Leave pay would be calculated only upon payments paid with the regular pay cycle – whether that be weekly, fortnightly or monthly. Other payments such as quarterly/ half yearly/annual incentive payments would be excluded as would reimbursing payments.

The eight per cent calculation for accrued annual holidays on termination or on the ‘pay as you go’ agreed arrangement for short-term employment would remain – subject to modification resulting from the above.

The other often difficult and potentially contentious area is that involving a determination of whether a day would otherwise be a working day when establishing entitlement to public holiday pay. It’s often tempting to suggest that if there is uncertainty about the question, a simple arithmetic formula be adopted to establish whether the day would have been a working day e.g. if the majority of x-days in the previous six weeks have been worked then x-day will be deemed to be a working day.

Whilst superficially attractive, particularly for payroll administrators, on balance, I think this could lead to some unfair outcomes and the present system – imperfect as it is – is probably not unreasonable. I’d like to know what others think.

Whilst simplistic, it is hoped that the above suggestions (constrained as they are by editorial requirements) might serve as a starting point for a debate long overdue. We would very much like to receive your feedback and any suggestions of your own for addressing the present problems associated with the Holidays Act.

Keith Woodroof

Employment Relations Advisor 

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