Are you making these Holidays Act mistakes?

If you employ workers who receive commission, have taken parental leave or work part time, then it’s possible that you’ve made one of these common calculation errors.

Are you making these Holidays Act mistakes?
Annual leave, parental leave, accrued leave – all are familiar to HR professionals, and all are outlined in the Holidays Act.

So why are some employers still facing legal action over these issues? HRM spoke to a leading employment lawyer to find out.

Where are employers being caught out?

“There are quite a few aspects of the Act that tend to catch employers out,” Sherridan Cook, partner at Buddle Findlay, told HRM.

“I think what’s catching employers out is the calculation of relevant and average daily pay for sick leave and public holidays – we generally end up with quite a few requests for clarification on that, especially coming into the holiday season with four public holidays in a row.”

He added that he was also asked for a lot of advice on when employers can require medical certificates and who has to pay for them.

“Another thing that causes issues is the taking of alternative holidays – where someone works on a public holiday and receives a day in lieu,” Cook continued.

“In this situation, the decision-making used to essentially lie with employees, but that’s changed so employers have more control over that now.”

According to Cook, employers are also caught out when it comes to making sure that they pay the right holiday pay out when an employee leaves their organisation.

“Another thing that catches employers out is the accrual of annual holidays when an employee is on parental leave, and then what the employee is entitled to in terms of payment if they take leave after they return,” he added.

“Annual leave will always still be accrued during a period of parental leave.”

“Modern payroll systems should be able to deal with all of those things, but we still do get queries about them,” Cook said.

“Sometimes employers approach us when they’ve been told by their payroll provider how it works, but the provider doesn’t have it quite right – it’s definitely worth checking if there is any doubt.”

What do employers need to be aware of?

“Employers need to understand the accrual and calculation of holidays and leave and how that then applies to their business – this is probably where there is the biggest disconnect,” Cook told HRM.

“When you read through the Holidays Act it obviously tells you what you should be doing, but when you then try to apply that to your business it can be practically difficult.

“Getting advice is useful – the Act has to apply to every business but every business is different in the way it runs and provides holiday and leave to employees.”

Cook explained that while this is straightforward for a nine-to-five, five day week salaried employee, anyone working shifts or across 24 hour periods, working odd days of the week or less than full-time, or are paid on a commission basis, it creates complications that then have to be worked through in the Act.

“However, the Act is becoming better understood by employers,” said Cook, who was part of the Ministerial Group on the old Holidays Act that led to the current one.

“This Act is better, but there is still a bit of room for improvement.”

Where are employers going wrong when it comes to leave?

Cook told HRM that one of the biggest issues for employers is the calculation of relevant daily pay which applies to sick leave, bereavement leave and alternative holidays.

“Annual leave is also up there with those mistakes; the rules around what gets included – for example, whether a bonus payment is included – is something we’re often asked for advice on,” he said.

“Employers often get confused about whether or not this is a discretionary payment.

“This is probably the number one thing that catches employers out: whether a bonus payment is included in an annual leave payment.”

He explained that the solution depends on the parameters the employer sets for bonus payments, and whether the employer retains an overriding discretion not to pay the bonus even though the employee might have hit all their targets.

“This would be something that must be outlined in the incentive scheme document or employment agreement, but employers often don’t want to do that because it acts as a disincentive to the employee,” Cook said.

“Some employers will say ‘we don’t want to send that message to our employees’, so they don’t retain that discretion and therefore have to include bonuses in the calculation of annual holiday pay.

“So the Holidays Act doesn’t really deal with that very well, or in a way that is still useful for businesses or reflects the commercial reality of businesses.”
Cook added that problems with calculating leave aren’t limited to a certain time of year.

“These issues arise throughout the year, as they tend to occur depending on financial year for the business – the most likely time to see these problems happen is after balance dates like March 31 or June 30,” he said.

“At this time of year, the problem for employers tends to be around public holidays and closedowns.”

Sherridan Cook will be speaking at the Employment Law for HR Managers masterclass in Auckland this March. For more information or to make a booking, click here.

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