The Holidays Act 2003: don't leave it too late

Anthony Drake, Senior Associate | March 2004

Introduction

The Holidays Act 2003 comes into force on 1 April 2004. The intention of the new legislation is to promote balance between work and other aspects of employees' lives and provide employees with minimum entitlements to annual holidays, public holidays, sick leave and bereavement leave.

Employers should adjust their systems in order to ensure recording compliance with the new legislation from 1 April 2004 and make plans to bring existing employment agreements into line no later than 1 April 2005.

This newsletter outlines the major changes brought in by the new Act and answers some frequently asked questions by employers.

Annual holidays

The Act retains the current provision of three weeks' paid annual holidays for all employees. However, from 1 April 2007 employees will be entitled to four weeks' annual leave.

Annual holidays are to be paid at the greater of the ordinary weekly pay at the time that the holiday is taken or the employee's average weekly earnings over the 12-month period before the annual holiday is taken. Payment is calculated on earnings up to the end of the pay period immediately preceding the holiday.

Ordinary weekly pay includes: regular allowances, regular productivity or incentive based payments (including commission or piece rates), the cash value of board or lodgings, and regular overtime.

Average weekly earnings are determined by calculating gross earnings over the 12 months prior to the end of the last payroll period before the annual holiday is taken, and dividing that figure by 52. Gross earnings include salary and wages, allowances, holiday and public holiday pay, sick and bereavement leave taken, overtime, productivity or performance payments, commission or piece rates, payment for annual and public holidays, the cash value of board and lodgings supplied, and any amount compulsorily paid by the employer under ACC and any other payments required under the terms of the employment agreement. It does not include discretionary payments.

Public holidays

The Act retains the same 11 public holidays as the Holidays Act 1981 but proposes different payment terms for those public holidays.

Under the new legislation, an employer must pay an employee at the rate of time and a half if the employee works for any part of a public holiday.

Also, if an employee works on a public holiday that would otherwise be a working day for that employee, then the employee is entitled to another day's holiday - called an "alternative holiday". If an employee is on call on a public holiday - and being on call restricts the employee's freedom of action to such an extent that, for all practical purposes, the employee had not had a holiday - then the employee is entitled to an alternative holiday.

Relevant daily pay is used to calculate payment for public holidays, alternative holidays, sick and bereavement leave. Relevant daily pay includes productivity or incentive payments (including commission or piece rates) if those payments would have been received if the employee had worked on those days.

Sick leave and bereavement leave

The new Act provides a minimum total of five days per year that can be taken for sick leave. An employee, after the completion of six months' continuous employment, will be eligible for sick leave.

The Act also allows an employee to carry over sick leave of up to 15 days into the next year, up to a maximum of 20 days.

An employer may require an employee to produce proof of sickness or injury for sick leave taken if the leave taken is for three or more consecutive days, whether or not the days are working days for the employee.

The Act allows that an employer must provide an employee with three days' bereavement leave upon the death of a person listed in the Act as a close family member.

In addition, one day's bereavement leave must be provided to employees on the death of any other person not specifically listed in the Act, where the employer accepts that the employee suffered a bereavement as a result of the death.

The Act lists relevant factors an employer should take into account, including the closeness of the association between the employee and the deceased person, whether the employee has responsibility for funeral arrangements, and whether the employee has any cultural responsibilities in relation to the death.

Tighter record-keeping required

The Act imposes stricter obligations on employers to keep detailed holiday and leave records (the number of categories of information that employers are required to record has increased from seven to 16).

In line with the philosophy behind other recent employment legislation, the Act says that an employer must inform the employee about his or her holiday entitlements when the employee enters into an employment agreement. An employer must inform new employees about their entitlements under the Act, and that more information is available from their union (if they are a member) or the Department of Labour.

All existing employment agreements must be amended to reflect the Act's changes by 1 April 2005, or when they are next amended or earlier.

Enforcement of penalties

Penalties for offences under the Act will increase significantly, with penalties of up to $5,000 if the employer is an individual and up to $10,000 if the employer is a company or a corporate body.

Frequently asked questions

What do I do with an employee who has accumulated a significant amount of annual leave?

If you and the employee cannot reach agreement on when annual leave will be taken, the Act allows an employer to direct an employee to take leave with not less than 14 days' notice.

Can I require an employee to work on a public holiday?

You can only require an employee to work on a public holiday if their employment agreement provides for it.

How do I manage the distinction between people who decide to come in to work on a public holiday and those who are directed to?

To avoid employees unilaterally deciding to work on a public holiday in order to reap the associated benefits under the new legislation, you should require employees to obtain written authorisation to work on a public holiday.

If an employee is scheduled to be at work on a public holiday but is sick, what are the pay/time off obligations?

In this situation, the employee would still receive the relevant daily pay and an alternative day's leave.

Conclusion

The new Act introduces substantial changes to current practice and it is essential that employers review their procedures, agreements and systems to ensure compliance - especially given the hefty increases in penalties.

Advice and information

Bell Gully's Employment Team can advise you on all types of employment issues, including the new Holidays Act 2003. Contact the team at the numbers below for more information.

Rob Towner
Partner