Holidays Act problems

Susan Hornsby-Geluk writes:

The recent exposure of employers paying holiday pay incorrectly has lifted the lid off a festering can of worms. …

So, where and why do the issues arise?

Firstly, the Act provides for annual holidays in weeks – employees are entitled to four weeks leave a year. This creates all kinds of problems because typically, we take our holidays, and our payroll systems record our entitlements, in days or hours rather than weeks.

While it’s easy to divide a “week” into a number of days for those who have a steady Monday – Friday work pattern, that is not necessarily the case for shift workers, part timers and people who work overtime. In these cases the days and hours of work may change from week to week.

Where employees move between full and part time employment, the situation becomes even more complex, requiring recalculation of leave balances based on the new hours.

Secondly, the Act contains a significant number of different calculations and formulae that must be used for working out what to pay people who are on holiday or leave.

Employees get paid “relevant daily pay” (or a different formula if this cannot be worked out) for sick and bereavement leave; time-and-a-half of relevant daily pay for public holidays; and the higher of average weekly earnings or ordinary weekly pay for annual holidays.

Average weekly earnings is the total of an employee’s gross earnings over the last 52 weeks, divided by 52. This calculation includes the value of all allowances, overtime, penal rates, incentive payments, contractual bonuses and other regular or semi-regular payments earned in the period.

Almost no employers actually calculate holiday pay different to normal pay – and to be honest the law shouldn’t require it.

Most employers just pay you your normal daily rate on a day you take annual leave. They treat it as if you were in the office. That is the common sense thing to do – you don’t get paid more or less by taking one of your 20 days annual leave.

Sadly the law though is way more complicated as described above. If you worked one extra day seven months earlier, then your average pay is higher and on your annual eave days you should get paid a few cents more.

Also if you had a pay rise, then your annual leave pay may be a bit lower than your new rate, as it is over the average of the last year.

It is becoming increasingly clear that the is not fit for purpose. Tinkering with it in the past has not fixed the problem, and has only added to the complexity.

What is required is a complete rethink and a clean sheet of paper.

Seriously, if companies with the resources of Fonterra cannot get it right, what hope is there for anyone else?

I agree. The compliance cost burden on medium and small employers would be huge. They just want to pay what they normally pay, when someone takes leave.

What I would do is set some principles such as:

  • Leave  is calculated as hours, being 8% of your annual hours (for 4 weeks leave)
  • The pay rate for leave is your current contractual pay rate

So for every 100 hours you work, you earn 8 hours leave. And no calculating average pay rates for the last year – just use the standard current pay rate they get for ordinary time.

Same should apply for public holidays.

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