Changes To The Holidays Act

The Government has received assent for the Holidays Amendment Bill.  It is now in force but most of the changes don’t come into effect until 1 April 2011. The new amendments are designed to provide flexibility to employers in organising their businesses and to overcome the frustrations people have had with the original Act. Employers will want to understand the impact of the changes so they can plan for the New Year.

The first provision of interest which will be applicable over the upcoming Xmas/New Year period is the adjustment to determining what would otherwise be a working day in the context of a closedown period.

Earlier this year, The Employment Court in the SCA Hygiene Australasia considered a situation where there had been a long customary practice of having closedown periods for 14 days at Christmas. The Court said that such days would not have otherwise been working days for the employees.

Usually most businesses use a combination of public holidays and annual leave to cover the Xmas/New Year period and may or may not refer to this as a ‘closedown period’. The impact of the SCA case left in doubt whether employees were entitled to be paid for public holidays that fell within a regular annual Xmas/New Year closedown.

The amendments make it clear that employees are indeed entitled to be paid for public holidays if they fall on days that would have otherwise been working days and are within a customary closedown period.

The change that may be of most interest to employers is the clarification of what is meant by "relevant daily pay" in the context of public holidays, alternative holidays, sick leave or bereavement leave. Intuitively there has probably never been a problem with defining the meaning of ‘relevant daily pay’ when it comes to salaried workers. But where there are waged workers engaged in regular over time or there are elements of productivity or incentive based payments there has been some confusion.

Under the new amendments there is a two stage process to determining what an employee’s relevant daily pay is. First the employer should attempt to determine what the employee would have earned on the day (e.g. a public holiday or a day off for sick leave). However if this is not possible or practicable then the employer may resort to using the "average daily pay" formula provided by the amendments.

The four week averaging formula to determine ‘average daily pay’ has been scrapped. The new calculation is now based on the employee’s average earnings in the 52 calendar weeks before the day off. Basically you now divide the average earnings of the previous 52 weeks by number of whole or part days worked in that period (inclusive of any paid time off but exclusive of any day not actually worked) to find what the employee is owed.

Another amendment that will be helpful to employers that have discretionary bonus or incentive schemes is that the meaning of "discretionary payment". A problem has arisen for employers when trying to determine what earnings fall within ‘ordinary weekly pay’ or ‘gross earnings’.

‘Discretionary payment’ means: "payments that the employer is not bound by any employment agreement to pay the employee but does not include payment of an amount where the amount to be paid is discretionary even though the payment itself is provided for in the employment agreement".

So to be a truly discretionary payment within the act the payment or any part of it cannot be a contractual right. This is to say that some incentive schemes are drafted so that the employee is contractually entitled to a bonus but the amount of the bonus is at the discretion of the employer. This type of incentive/bonus will not be considered a discretionary payment under the Act.

The next major change relates to the ability of the employee to request that up to one week annual leave be paid out. The important thing to remember here is that this is the employee's right and such a request must be informed, made voluntarily and in writing. There is an express prohibition preventing employers requiring leave to be cashed up or raising it in negotiation.

The point for employers to note is that if the employee's request to cash up annual leave is not informed or voluntary then their entitlement continues to exist and remains in force as if the payment had not been made. Therefore clear processes and paperwork surrounding such requests are a must.

The leave that is subject to the cashed up request must be annual leave that is an actual entitlement and should not be accrued leave. There is also ability for an employer to decline a cash up request. But if they do so or not the confirmation or rejection (no reason is required for declining a request) must be made within a reasonable time and be in writing. An employer may have a policy that allows it not to consider any requests for cashing up.

An area of employment law that has caused some concern over the years has been the ability of the employer and employee to agree on transferring a public holiday. It is now clear that the employer and employee can agree in writing to transfer a public holiday to an alternative day. The example provided in the explanatory note accompanying the Bill gives the following example: “...if Waitangi Day falls on a Wednesday, an employer and a group of employees who work Monday to Friday may agree to observe Waitangi Day on the Friday. Similarly an employee may agree with his or her employer that he or she can observe Boxing Day on another working day that holds religious or cultural significance for that employee.”

The crucial criteria in any such agreement is that it must be informed, voluntary, in writing and the purpose of the transfer cannot be to avoid the penal rates or an alternative holiday that working on a public holiday would normally attract.

The important part for employers to remember is that where there is an agreement to transfer a public holiday the employee's entitlements to penal rates and/or an alternative holiday are also transferred if the employee works on any part of the transferred public holiday day. So if for some reason the employee works on the agreed transferred public holiday then they are entitled to time and a half for the hours they actually worked plus an alternative paid holiday at another time.

An employer may have the policy that allows it to not enter into agreements to transfer of public holidays. But the bottom line still remains that there cannot be an agreement that reduces the number of paid public holidays that an employee is entitled to in any year.

Alternative holidays are days that an employee is entitled to if they have worked all or part of a public holiday. Before the amendments an employer could not direct an employee to take an alternative holiday within 12 months since the entitlement accrued.

Now if an agreement cannot be reached on when the alternative holiday is to be taken the employer can determine when it should be taken. The employer is required to provide 14 days notice to the employee that they are required to take an alternative holiday.

Under the amendments an employer has an ability to make a request for proof of sickness or injury within three consecutive calendar days without having reasonable grounds to suspect that the sick leave is not genuine. But an employer still has to meet the employee's reasonable expenses in obtaining the proof.

From the author's experience it is not that difficult for an employee to get a medical certificate that provides that they need a day off for a medical reason. So while this new entitlement may provide some employers with relief from unwarranted days off the reality is the employer will only be adding the cost of the employee's medical consultation to the cost of a lost day of productivity.

Good faith communications in all employment matters is still the general rule and it is important to bear in mind that there has been an increase in maximum penalties for non compliance with the Act ($10,000 for individuals and $20,000 for companies and other bodies corporate).

The amendments provide some flexibility to employers but employees must initiate any cash up or transfer agreement. Best practice dictates, and the amendments require, all such agreements are recorded in writing.

Updated: December 2010