Home > Employment Relations > Changes to the Holidays Act and the Employment Relations Act

Changes to the Holidays Act 2003

Payment for leave

For public holidays, alternative holidays, sick leave and bereavement leave, an employee is entitled to be paid either their relevant daily pay or average daily pay.

Relevant daily pay is the amount the employee would have received had he or she worked on the day concerned, including:

However, it excludes payment of any employer contribution to a superannuation scheme for the benefit of the employee.

Average daily pay is a daily average of the employee's gross earnings over the past 52 weeks. That is, the gross earnings figure divided by the number of whole or part days the employee worked or was on paid leave or holidays during that period.

An employment agreement may specify a special rate of pay for the purpose of calculating payment for a public holiday, an alternative holiday, sick leave, or bereavement leave, as long as the rate is equal to, or greater than the employee's relevant daily pay.

When calculating payment for a leave entitlement, an employer should attempt to determine an employee's relevant daily pay in the first instance. If it is not possible or practicable to determine relevant daily pay, or if the employee's daily pay has varied within the pay period when the holiday or leave falls, an employer may pay his or her average daily pay. Average daily pay must be used if it is not possible to determine relevant daily pay and there is no special rate agreed to in the employment agreement.

The amount of pay does not include any extra amount that would be added by virtue of working on a public holiday.

If an employer and employee cannot agree on the amount of the employee's relevant daily pay or average daily pay, a Labour Inspector may determine the amount.

Changes to the calculation of payment for working on a public holiday

An employer may also use the average daily pay (ADP) to calculate an employee’s pay for working on a public holiday. The only time an employer may choose to use the ADP, to calculate an employee’s pay for working on a public holiday, will be when that employee’s daily pay varies in the relevant pay period.  This is because the trigger for using the ADP for the reason that it is ‘not possible or practicable’ to determine relevant daily pay will never be met when the employee actually works on the public holiday.

If the daily pay varies in the relevant pay period and the employer chooses to use the ADP to determine the employee’s pay for working on a public holiday, the employer must work out the portion of the employee’s ADP that relates to the time actually worked on the day (minus any penal rates) and then multiply by 1.5.  This figure must be compared to the employees’ relevant daily pay (including any penal rates) and the employer must pay the greater amount.

The first public holiday to be affected by the change will be Good Friday, 22 April 2011.

Cashing up a maximum of a week of annual holidays

The law change means that employees will be able to ask for their employer to pay out up to one week of their minimum entitlement to annual holidays a year.

This can only be at the employee's request and the request must be made in writing. Employees may request to cash up less than a week at a time. More than one request may be made until a maximum of one week of the employee's annual holidays is paid out in each entitlement year (a period of 12 months' continuous employment from the anniversary of the employee's starting date.)

Any request must be considered within a reasonable time and may be declined - unless the employer has a policy that does not allow cashing up. The employee must be advised of the decision in writing and the employer is not required to provide a reason for their decision.

If an employer agrees to pay out a portion of the employee's annual holidays, the payment should be made as soon as practicable, which will usually be the next pay day. The value of the payment must be at least the same as if the employee had taken the holidays.

An employer cannot pressure an employee into cashing up holidays. Cashing up cannot be raised in wage or salary negotiations or be a condition of employment. Requests to cash up cannot be included in an employment agreement. However, an employment agreement may outline the process for making such a request. The process must meet the minimum requirements set out in the legislation.

Employers may have a workplace policy that they will not consider any requests to cash up annual holidays. This can apply to the whole or only some parts of the business. The policy can only be on whether the employer will consider any requests. It cannot be about the amount of annual holidays an employee can cash up or the number of requests an employee may make. An employer should consult with employees on the development of such a policy, and new employees of the policy when they make an offer of employment, as part of their good faith obligations.

If an employer does not have a workplace policy on cashing up that applies to the employee, they must consider any request to cash up annual holidays in good faith.

If an employer is found to have incorrectly paid out a portion of the employee's annual holidays where the employee did not request it, the employee is still entitled to take the portion of annual holidays concerned and to keep the money. The employer may also face a penalty.

If an employer has agreed to pay out a portion of the employee's annual holidays, but the employer and employee cannot agree on the proportion or payment amount, a Labour Inspector may determine the proportion or amount for them.

Employees cannot cash up annual holiday entitlements that arose before 1 April 2011. For example, an employee who becomes entitled to annual holidays in March 2011 could not make a request to cash up until they next become entitled to annual holidays in March 2012.

There are other details that employers and employees considering cashing up holidays will need to know, for example how it affects superannuation payments, income tax and what happens when there is parental leave. The Department of Labour can assist with information about parental leave and you can contact us on 0800 20 90 20. For tax related matters please contact Inland Revenue on 0800 227 774 or go to www.ird.govt.nz

Transferring public holidays

Employers and employees will be able to agree to transfer the observance of public holidays to another working day in order to meet the needs of the business or the individual needs of the employee. Such an agreement cannot reduce the number of public holidays to which the employee is entitled.

An employer and employee may agree in writing that an entire public holiday is to be observed by the employee on another calendar day or 24-hour period which would otherwise be a working day. Any request must be considered in good faith and any agreement must meet the minimum requirements set out in the legislation. These are:

Employers and employees are still able to transfer part of a public holiday, for cases where an employee is to start work on one day and finish on the following day. For example, say an employee is to work from 10pm on 24 April to 6am on Anzac Day and from 10pm on Anzac Day to 6am on 26 April. The employer and employee can agree to treat 10pm to midnight on Anzac Day as not part of a public holiday, in exchange for treating a period of 24 hours that finishes on Anzac Day as a public holiday. The parties can agree whether the 24-hour period starts before or finishes after a work period. For instance, they could agree that it runs from midday on 24 April to midday on Anzac Day.

Once an employer and employee have agreed that a public holiday will be transferred to another day, the day the public holiday is transferred to is treated as if it were a public holiday for the purposes of the Holidays Act. The employee is entitled to a paid day off on that day and the following applies:

Employers may have a workplace policy that they will not transfer public holidays. This can relate to the whole of a business or some parts of the business. As part of their good faith obligations an employer should consult with their employees on the development of a policy. If employees agree, this policy could be included in an employment agreement. An employer should tell any potential new employee about the policy when they make the offer of employment.

If the employer does not have a workplace policy on transferring public holidays that applies to the employee, they must consider any request to agree to transfer public holidays in good faith.

The first public holiday to which the new law may apply is Good Friday, 22 April 2011.

The Department of Labour can help employers and employees if any disputes arise around transferring public holidays.

Taking alternative holidays

If an employee works on a public holiday they are entitled to be paid time and a half for the hours they work and if it is an otherwise working day for the employee they are also entitled to another paid day off. This alternative holiday recognises that the employee has missed out on having a day off work on a day of national significance and enables them to take a day off at another time.

From 1 April 2011, if an employer and employee cannot agree when an alternative holiday is to be taken, the employer may determine, on a reasonable basis, the day the alternative holiday will be taken on.

The employer must give the employee at least 14 days' notice of the requirement to take the alternative holiday.

Asking for proof of sickness or injury

Employers will no longer have to have reasonable grounds to suspect that sick leave is not genuine before requesting proof of sickness or injury within three consecutive days of an employee taking sick leave. The employer must inform the employee as early as possible that the proof is required and agree to meet any reasonable expenses in getting this proof.

Clarification of entitlements during a close-down period

Employers can require employees to take annual holidays during a close-down period, providing they give at least 14 days' notice.

The change clarifies that where it is not clear what would be otherwise working days for an employee during a close-down period, the factors in section 12 of the Act must be considered as if the close-down were not in effect.

For example, if a business has a customary 'close-down' or 'shut-down' period that includes public holidays (as can happen over the Christmas and New Year period) then the employee is entitled to those public holidays as if a they fell during a period of standard annual holidays.

This change only applies to customary close-down periods within the meaning of the Act. Employers and employees are still free to agree to other periods of discontinued operations or work and what arrangements will apply during those times.

Other changes

Holiday and leave records

The requirements for employers to keep accurate records of an employee's holiday and leave entitlements and payments have been updated to reflect the ability to cash up annual holidays and transfer public holidays.

Employers should ensure their holiday and leave records meet the new requirements, including keeping copies of agreements to transfer holidays or any requests to cash up annual holidays even if they were not agreed to.

Additional factors for determining whether a day would otherwise be a working day

An 'otherwise working day' is used to determine eligibility for public holidays, alternative holidays, sick leave and bereavement leave.

If it is unclear whether a day would otherwise be a working day for the employee, these factors must be taken into account:

The changes to the Holidays Act 2003 insert an additional factor (the 'but for' test) here:

"In determining if a day would otherwise be a working day for an employee, the employer and employee must also consider whether, but for the day being a public holiday, an alternative holiday, a day on which the employee was on sick leave, or bereavement leave, the employee would have worked on the day concerned."

The 'but for' test is not intended to change how to determine what is otherwise a working day is; it is an additional aid to help employers and employees make that determination.

Further defining discretionary payments and allowances

There is now a definition of "discretionary payments" and "allowances".

"Discretionary payments" are payments that an employer is not bound by the employment agreement to pay the employee. They do not include amounts that the employer is bound by the employment agreement to pay the employee, including where the amount is at the employer's discretion or not specified.

"Allowances" exclude non-taxable payments to reimburse employees for any actual costs incurred by the employee in relation to their employment.

Note that discretionary payments are excluded from gross earnings (used to calculate average weekly pay and average daily pay). Allowances are included in gross earnings. Payments for cashed up annual holidays are not included in gross earnings. Payment for annual holidays taken as holidays away from work is included in gross earnings.

Increased penalties

The amendment increases the maximum penalties for non-compliance with the Holidays Act 2003 to $10,000 for individuals and $20,000 for companies and bodies corporate.