Holidays Act update

• Published date: 18 May 2021
• Subject Matter: Employment and HR, Employee Benefits & Compensation
• Law Firm: Wynn Williams Lawyers
• Author: Mr Anthony Drake

Government has announced that it has accepted all the Holidays Act Taskforce's recommendations and expects to introduce legislation in 2022. It is universally accepted that most employers have experienced some difficulty in calculating accrual and payment of employee holiday entitlements. In recent years, many employers have been required to recalculate employee holiday entitlements and there have been significant pay-outs to correct errors. With that in mind, the Taskforce sought to make calculating leave payments an easy and simple process, by providing clear rules that employees and employers can use to determine, calculate, and pay leave entitlement accurately.

The Taskforce's key recommendations are to:

Update gross earning definition

Gross earnings is defined in section 14 of the Holidays Act 2003 (the Act) and lacks clarity about what payments are included. The recommendation is that gross earnings should reflect all cash payments received, except direct reimbursements.

Update pay as you go

Currently pay as you go is defined in section 28 of the Act and allows an employer to regularly pay annual holiday pay of 8 percent of an employee's gross earnings, in lieu of providing four weeks annual holidays. The recommendation is that pay as you go for employees on fixed-term contracts of less than 12 months should be removed and a more detailed definition of irregular and intermittent work patterns should be developed. Also, employers should be required to review work patterns every 13 weeks to confirm pay as you go eligibility.

Simplify annual holidays calculations

Ability to take annual leave in the employee's first 12 months

Currently employees are entitled to four weeks paid annual holiday after 12 months of continuous employment. Employees can request annual holidays in advance, but employers are under no obligation to approve a request. The Taskforce recommends that employees should have the ability to take annual holidays in their first 12 months up to the amount they would be eligible for on a pro-rata basis (no right to take more leave than entitled to). Any requested leave above the pro-rata entitlement would be at the discretion of the employer.

Calculating payment for annual holidays

The Act currently prescribes two methods of calculating annual holiday payments. Payments are to be paid at either the greater of:

• Ordinary Weekly Pay (or average weekly earnings over the last 4 weeks if OWP cannot be calculated).
• Average weekly earnings over...