1 SUMMARY

Purpose & context of the research

The purpose of this research is to provide a qualitative picture of the impact of the Holidays Act 2003 on small and medium enterprises (SMEs); and in particular to explore criticisms of the Act relating to the complexity of calculating payments for relevant daily pay and annual leave. This research is intended to contribute to a wider review of the Holidays Act being supported by the Department of Labour in 2009.

Method

The research involved interviews with employers, payroll administrators and employees from 10 independent, private sector businesses with between 1 and 40 employees. An additional firm with 75 employees was included in the study to provide a point of comparison with a larger business. SMEs were the focus of the study because the compliance costs of regulation are widely considered to be relatively higher for this group. The firms selected were in the transport, manufacturing, retail or hospitality sectors because these sectors tend to employ at least some staff with varying daily or weekly working hours. Data was collected through semi-structured interviews, with some review of documents (pay roll data, pay slips and employment agreements).

Findings

Awareness & perceptions

Employers' knowledge of the Act followed typical patterns for employment rights legislation, that is, employers were most familiar with the provisions they encountered most often. Thus there was a high awareness of annual leave (or the percentage this would add to casual workers' pay) and public holiday entitlements, and less understanding of specific provisions of the Act around sick leave and bereavement leave because these provisions had a relatively low impact on the employers in sample.

Employees did not know their specific entitlements under the Act (nor in relation to other employment relations legislation). Although all employees could name sources of information about their entitlements only one had ever sought such information.

Employers' perceptions of the Act were focused on the direct costs of the fourth week of annual leave, and, to a lesser extent (because only one firm in the sample now regularly employed staff to work on public holidays) employees' entitlements for working on public holidays.

Calculating entitlements

Familiarity with the relevant daily pay concept varied amongst employers and payroll administrators. The most comprehensive knowledge of how leave entitlements were calculated was associated with employers who managed the payroll within the firm, and whose staff regularly worked varying daily or weekly hours.

Employers/payroll administrators did not consider the relevant daily pay calculations difficult to understand, and they were considered time consuming only for the largest employer because they had to be addressed on an individual staff member basis.

Respondents could not suggest an alternative calculation that would be less time- consuming for employers while retaining current entitlements.

Employers in the study were not resorting to the averaging formula for relevant daily pay in order to save time or minimise payments to employees but used it because it was not clear how many hours the employee would have worked on the day in question.

Although employees' 'gaming' was not in evidence in this study, this may be related to employees' lack of awareness of relevant daily pay and/or the informal nature of the employment relationships in small and medium firms.

Knowledge of annual leave calculations also varied amongst employers. However, annual leave calculations were not considered complex by employers regardless of the type of payroll administration they used, how many staff they had or the employment arrangements those employees had. There was no indication that employers used the averaging formula to calculate payment for annual leave except in cases where employees worked varying number of hours per week.

Accumulation of alternative holidays

Where a business regularly traded on public holidays, it was the cost of the alternative holidays rather than the management of these days that was an issue for employers. Where employees did get alternative holidays, they viewed the day as leave to be taken when it suited them rather than necessarily a day to be taken on the day of greatest financial advantage to them under relevant daily pay. This may be related - in this study - to employees' lack of awareness of the implications of relevant daily pay.

Accumulation of annual leave & sell back options

Accumulation of annual leave (subsequent to the introduction of the fourth week) was not an issue for employers either because it was managed through leave rosters and obliging employees to take annual leave within a 12 month period, or because employers did not object to it accumulating. Rather, the issue stemming from the fourth week of annual leave (aside from the direct cost) was one of covering for staff on leave.

Employers across all sectors and firm sizes were thus interested in employees' having the option to sell back a week's annual leave because this option may address difficulties with covering for staff on leave. Employees too were generally interested in having the option to sell back leave - as long as it was an option that employees rather than employers requested.

Use of casual staff

Firms in the study that sought to employ casual staff did so in a way that met the test of 'casual' defined in employment regulation. (There were, though, also examples of firms paying regularly employed workers as casuals.) The Act had increased demand for casuals to cover increased annual leave in firms, particularly in those that did not have a close-down period. It was not, however, firms' preference to use casual staff over permanent employees regardless of firm size or sector. The key entitlement for casuals of an additional eight percent of pay rather than annual leave was well understood and adhered to.

Transferring observance of public holidays & treatment of public holidays

There was not sufficient clarity around how changes to the observation of public holidays under the Act might operate in practice to enable employers to assess whether it would be useful for business reasons, or for employees to gauge whether it would provide them with any advantage.

Respondents' views on the current anomalies in the treatment of public holidays were centered on fairness, that is, all businesses should be treated in the same way.

Overall impact of the Act

Those employers whose businesses postdated the increase in annual leave (April 2007) considered the Act a fact of business life, without a particular impact on their firms that other businesses did not also face. This suggests that some of the impact (including perceptions) of the Act relates to regulatory change rather than the regulation itself.

The main impact most employers experienced was the direct cost of employees' entitlement to an additional week of annual leave (including the difficulty and expense of covering for employees on leave). For businesses which traded on public holidays, the direct costs of employees' entitlements for working on public holidays added to this impact. Increased employee entitlements for working on a public holiday had caused or contributed to small employers in the retail and hospitality sectors either not trading on public holidays or the employer working the public holiday without any additional staff.

Overall, however, the Act was seen as a minor constraint by employers, particularly compared to product market and (to a lesser extent currently) labour market constraints.

Conclusion

The marginal compliance costs imposed by the Act were considered insignificant by employers in the study, therefore, amending the Act to alter the calculations required (whilst maintaining current employee entitlements) is likely to have no effect on these employers - or may even impose additional costs through change to current pay and leave systems. It was not evident from the study that the Act imposes higher compliance costs on SMEs compared to larger businesses. However amending the Act to give employees the option of selling back a proportion of annual leave may alleviate employers' difficulties with covering for staff leave - this was a suggestion generally welcomed by employers and employees in the study.

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