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Brief Counsel

Holidays Act review - no holiday

12 August 2009

You have until 21 August to have your say on the reform of the Holidays Act.  Submissions are to the Advisory Group appointed (by the Minister of Labour, Kate Wilkinson) to conduct the review. 

The Group has the diversity and experience to identify the issues, but coming up with solutions to fix the problems will not be an easy task. 

Scope of the review

The review terms of reference include:

  • the calculation of pay for holidays
  • trading annual leave for cash at the employee’s request, and
  • transferring the observance of public holidays.

Some observations

The Group has been instructed to ensure that “current core holidays and leave entitlements are maintained”.  That restriction raises the question as to what are “core leave entitlements”.  

Four weeks a year away from the workplace is clearly not a core entitlement as the possibility of cashing up the fourth week is explicitly up for consideration. 

Decreasing the number of public holidays per year will also be off the agenda, although there could be flexibility on when these holidays are taken. 

Surely, the amount of money employees actually receive when they take leave must also be a “core entitlement”.  The terms of reference seem to reinforce that view as the Group is required to take into account “what employees are currently entitled to when paid their holiday and leave pay.”

The review may therefore be limited in what it can recommend in these areas.

A frequent criticism of the Act is the calculation of Relevant Daily Pay and Ordinary Weekly Pay.  These calculations determine what an employee receives when he or she takes leave for sickness or bereavement and for public holidays or annual holidays.  The calculation is relatively straightforward for salaried employees who have little or no incentive based components to their wage but can deliver unexpected results when employment arrangements contain bonuses and other incentives. 

The calculations can result in surprising (and, from the employer’s perspective, costly) payments.  A single significant bonus or commission payment in the four weeks before an employee takes leave can create a windfall for the employee and can be problematic for the employer, particularly as employees like to receive bonuses immediately before the Christmas period when leave is often taken.

The significance of the issue is best shown by a (not so uncommon) example.  Take an employee who receives $26,000 a year in base salary, and significant monthly commissions that vary in amount.  Assume that the employee has received a total of $26,000 commission over the last year but that $10,000 of this is paid just before leave is taken.  A common sense approach would likely see the employee receiving an amount equivalent to his base salary plus the average commission received over the preceding year while on leave i.e. $1,000 per week. 

But the Act requires the employee to be paid the greater of this averaged amount, or his “Ordinary Weekly Pay”.  The Ordinary Weekly Pay calculation provided by the Act then requires (because the commission varies in amount every time it is paid) an assessment based on the last four weeks’ earnings. 

The result leads to an Ordinary Weekly Pay of $3,000 ($2,000 base salary plus $10,000 commission, divided by four), which the employee receives for each week of his holiday. 

Review Group has tough task

The Advisory Group has a difficult challenge in coming up with solutions to fix the Act’s problems.  The Regulatory Reform Agenda dictates that regulation should “be as generic and simple as the sector allows”, but it is questionable whether that aim can be achieved, while still producing satisfactory results across the multitude of different employment arrangements that exist. 

How do you come up with a one size fits all answer when there are so many scenarios?  What is fair (and sensible) for one workplace may create alarming results in another.

The difficulty of the task does not mean that the process is not worthwhile.  Review is definitely needed, and the makeup of the Advisory Group should ensure that the appropriate level of expertise and different perspectives are available for the job.  However, depending on their interpretation of their own terms of reference, the Group may be confined to too narrow an outcome. 

Group membership

Peter Kiely (Chair)

Senior partner with Kiely Thompson Caisley, Adjunct Professor of Employment Law at Victoria University, author of The Guide to Holidays and Leave 2006.

Paul Mackay

Employment Relations Policy manager with Business New Zealand.

Helen Kelly

President of the Council of Trade Unions

James Ritchie

National Secretary of the New Zealand Dairy Workers’ Union.

Phillip Doak

Senior Legal Counsel to the Air New Zealand group of companies.

Where to from here

One hopes that the Advisory Group will aim for sensible results even though that could mean acting outside its prescribed scope.  The approach that it takes will be guided by the submissions it receives.

This is an important opportunity to resolve some longstanding issues with the Holidays Act.

For further information or assistance in preparing a submission, please contact Doug Alderslade, Geoff Bevan or Marie Wisker.

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