Happy holidays? Ensuring Holidays Act compliance over Christmas and New Year

Wednesday 7 December 2016

Author: Liz Coats

​​​​The Holidays Act 2003 has been in the news this year, with revelations of widespread non-compliance by both public and private sector employers. The Ministry of Business, Innovation and Employment (MBIE) has estimated that the historical non-compliance may amount to over NZ$2 billion in underpaid wages to employees across the country.

At this time of year, it is prudent for employers to consider their obligations under the Act regarding public and annual holidays well in advance of the holiday season, and make sure that their systems are set up to ensure compliance.

Public holidays

Entitlements

Over the holiday season, there are four public holidays: Christmas Day, Boxing Day, and 1 and 2 January.

This year, Christmas Day and 1 January fall on Sundays and will therefore be affected by the “Monday-isation” (or, this year, “Tuesday-isation”) rules in the Act. In summary:

  • If the employee would normally work on a Sunday, then their public holiday entitlements will apply on the actual days of 25 December and 1 January.
  • If the employee would not normally work on a Sunday but would normally work on a Tuesday, then the public holiday entitlements will transfer to the following Tuesday (i.e. 27 December and 3 January).
  • If the employee would normally work on both Sunday and Tuesday, then the public holiday is recognised on its calendar date (i.e. 25 December and 1 January).

Employees are entitled to receive a paid day off on a public holiday if it is a normal working day for them. If employees are required to work on a public holiday, they should be paid time and a half for the time actually worked on the day (or the employee’s relevant daily pay that relates to the time actually worked, including any penal rates, if this is greater than the time and a half calculation).

If employees are required to work on a public holiday that falls on a normal working day, they are also entitled to receive an alternative holiday to be taken in the future.

Practical tips

In determining an employee’s public holiday entitlements, the key question is whether an employee would normally have worked on the day in question. This will be straight-forward if the employee works according to a constant working pattern or a regular roster.

However, if the employee’s working pattern is irregular, it can be complicated. In this situation, the employer should consider factors such as:

  • the employment agreement,
  • the usual work pattern, and
  • whether the employee is likely to have worked if it wasn’t a public holiday.

It may be useful to consider the employee’s work patterns over the recent past (e.g. previous one to two months).

In terms of paying an employee for public holidays, the Act provides that an employee is to be paid their “relevant daily pay” (RDP) or, in certain circumstances, the employee’s “average daily pay” (ADP). Both of these calculations are defined in the Act.

RDP is the amount that the employee would have received had they worked on the relevant day. Again, this is reasonably easy to determine for a salaried worker with regular hours. However, if it is impossible or impractical to determine, or the employee’s daily pay varies, the employer may apply ADP –​ which is based on the employee’s average daily pay over the previous 52 weeks.

When it comes to paying employees for public holidays, you should watch out for the following issues:

  • Consider whether the rate paid includes regular allowances or payments outside the employee’s base rate. These payments may continue to be automatically paid outside the RDP/ADP calculation, but if not, they will need to be taken into account as part of the calculation.
  • Where RDP applies, consider whether the employee has been paid according to the hours that they are likely to have actually worked (for example, if a waged employee regularly works eight hours at their base rate but then works two hours overtime on that particular day of the week, the RDP payable should reflect this).
  • Check that your system is not defaulting to a “four week look back” calculation for RDP. The Act used to provide for an averaging formula based on the last four weeks’ gross earnings, but since the ADP formula was introduced in 2011, this no longer applies to RDP calculations.

Annual holidays

Entitlements

Employees are entitled to four weeks’ annual holidays per year (based on what constitutes an ordinary working week), after 12 months’ continuous service. There are some exceptions to this, including casual employees and fixed term employees who are employed for less than 12 months.

It is quite common for employers to close down for the holiday period. Closedowns are permitted under the Act, and it states that:

  • A closedown can relate to an entire workplace or just part of a business.
  • An employer must provide employees with at least 14 days’ notice of any closedown.
  • Employees should be paid for that annual holiday in the ordinary way (i.e. at a rate based on the greater of their ordinary weekly pay or average weekly earnings).​
  • If an employee doesn’t yet have entitled annual holidays to cover the closedown period, they are still required to stop work. There are a few options for how the employee may be paid for that period and they are as follows:
    • the employee is paid 8% of their gross earnings since they commenced employment or last became entitled to annual leave (less any leave already paid in advance or in cash),
    • the employee and employer could agree to treat some or all of the closedown as leave in advance, or
    • the employee can take unpaid leave.

Practical tips

An employee’s ordinary weekly pay (OWP) is everything that the employee is normally paid weekly. If this is not possible to calculate (e.g. because the employee’s weekly pay is irregular), the employer can determine the OWP based on their last four weeks’ gross earnings prior to the end of the last pay period, divided by four.

An employee’s average weekly earnings (AWE) is based on the employee’s gross earnings for the last 52 weeks, divided by 52. Employers should make sure that everything that should be included in gross earnings has in fact been included. A common issue is whether a bonus or incentive payment is “discretionary”. If it is discretionary then it does not need to be included; if not discretionary, it should be included. The bonus or incentive may be a significant component of an employee’s annual remuneration, so whether or not it is included in AWE, this can have a big impact on what they are paid for their annual holidays.

Be prepared

The entitlements under the Act are minimum entitlements, which are regularly enforced by Labour Inspectors and the Authority and Court. It is important to be prepared, anticipate possible issues, and review your systems to make that they are operating in a manner that reflects compliance with the Act. This will make for a happy holiday season for all.

Our Employment team regularly advises on Holidays Act compliance. If you have any questions regarding any of the issues in our article, please contact us for more specific advice.


Disclaimer

This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.

For more information
  • Tim Clarke

    Partner Auckland
  • Rob Towner

    Partner Auckland
  • Rachael Brown

    Partner Wellington
  • Liz Coats

    Senior Associate Auckland
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