The effect of the Holidays Act 2003 on small and medium enterprises – a qualitative study
3 FINDINGS
3.1 The business environment
This section provides a brief description of the business environment for the firms studied. Interviews were carried out over March-May 2009 - a time of economic recession.
In the retail sector, one firm sold clothes at the higher end of the market. The owner noted that turnover had become very unpredictable compared to earlier years in the business when clear patterns were visible. This retailer offered a made to measure service and the staff received a high level of training about fabric and fit. A second retailer sold and serviced computers. The business was busy and the owner was not expecting the recession to have a severe impact, as people would continue to have computers serviced even if sales diminished.
In the transport sector, the firms were local or regional operators. One of the cases had noticed a 10-15 percent drop in business and was not replacing the two staff who had left most recently. In a second case a recently won contract for the next two years had provided some future assurance to a business described as 'generally uncertain.' In the third case, business had declined over the past twelve months and the minimum number of hours guaranteed to drivers had recently been reduced from 40 to 32 per week.
Of the three firms in the study working in the hospitality sector one was newly established and working seven days a week in a competitive environment. A second firm received a significant part of its trade from the commercial building it was located in, and aligned its hours with the trade this building provided. The third case was a much larger business open seven days a week for lunch and dinner, catering to the local and tourist trade.
In the manufacturing sector, one clothing firm was facing extreme competitive pressure from offshore manufacturers, employees had been put on short working weeks (24 hours a week) and the owner described the business as covering costs only, and trying to remain viable until the owner retired. A second firm (manufacturing equipment for a primary industry) was, after some years of technical issues and investment in research and development, finally at a point they were satisfied with. In the third case, another clothing manufacturer had also developed a particular niche. The business had experienced both decline and growth and was now described as steady. Employers in the manufacturing sector spoke of the team approach that was now used in their work which had led to a move away from piece work and incentivising individuals' pay.
Overall, where business constraints were identified by employers (as they were by most), these related to the product market. Although a labour market more favourable to employers had been developing over the past 12 months, labour market constraints had been experienced by most employers. These constraints were not only about skills but also about reliability and attitude.
Employment relations were generally described by both employers and employees as flexible with 'give and take' from both parties. In the smaller firms where there was a close working relationship with the employer, employees were notably empathetic to the employers' circumstances. There were some union members amongst the staff of two of the firms in the research; however, all employees interviewed were on individual employment agreements.
3.2 Awareness of the provisions of the Act
Employers & payroll administrators
All participants in the research were asked about their understanding of employees' entitlements under the Act. All employers knew at least that it provided minimum standards of annual leave (or 'pay as you go' holiday pay for casuals) and remuneration for employees on public holidays.
As shown in Table 2 below, two of the firms contracted out the pay and leave administration (to their accountant and a payroll company respectively). These employers stated they know little about the Act, were too busy to find out and couldn't see the point in doing so, as they paid someone else to do this work.
Other employers who had in-house pay and leave administrators had similar views. They had received information from (variously) employers' associations, employment lawyers, the Department of Labour or Inland Revenue but did not know or feel the need to know what the provisions of the Act were in detail. Payroll staff working in these firms generally used similar sources of information (the websites of Inland Revenue and the Department of Labour[3] and updates from payroll software providers). One payroll administrator had attended training on the Act in a former role with a larger company.
Two of the employers administered the pay and leave themselves, manually using a spreadsheet (although one had recently bought payroll software.) These employers also used information from the Department of Labour's and/or Inland Revenue's website.
| Type | Number |
|---|---|
| In-house manually | 2 |
| In-house with payroll software | 6 |
| Payroll company | 1 |
| Accountant | 1 |
| Mix of in-house & payroll company | 1 |
Irrespective of whether the employer or a payroll administrator handled pay and leave, information about the Act was sought (most commonly from the Department of Labour website) on an 'as needed' basis. For example, information about the calculation of payment for annual leave would be sought only when someone took leave
With the exception of the payroll administrator who had received training in a previous role, only two of the employers or payroll staff had a comprehensive understanding of the provisions relating to annual leave, sick or bereavement leave or payment for public holidays (i.e. they knew what the entitlement was and how to calculate it).
When asked, several people who administered the pay and leave (either employers or payroll staff) mentioned an area of uncertainty, as shown in Table 3 below. There was not a common point of difficulty.
| Area of the Act | Question | Firm's solution |
|---|---|---|
| Public holidays | Who to pay and how much when a public holidays falls on a Saturday? The shop is closed on public holidays but would normally be open for several hours on a Saturday. Saturdays are worked on an irregular basis by whoever wants the extra hours - not the same employee every week. | Don't pay anyone for the Saturday hours. |
| Alternative holidays | How much in lieu time to give an employee who works less than a full day on a public holiday because the shop is open shorter than normal hours? | Round the in lieu time to the nearest half day or full day. |
| Sick leave | How many hours of sick leave per day to pay an employee who has recently had their daily hours reduced by the employer? | Pay sick leave 'on an individual (personal) basis,' taking into account how long they have been employed. |
There were other examples of low awareness of entitlements amongst employers and payroll administrators, relating to other aspects of employment legislation such as when workers can be paid as casual employees, and the legislation around employment agreements. These had an effect on how the provisions of the Holidays Act were applied to individual employees. For example, employees erroneously defined as casual received no sick pay or pay for public holidays (when the business was closed) and were paid an additional eight percent of their pay every week rather than receiving annual leave.
The research also found a lack of advice from payroll companies and accountants to employers. There were two notable examples of this: in one case, employees who regularly worked a 40 hour week every alternate week with no end date to their employment were being paid by a payroll service as casual employees (with no pay for absence due to sickness, bereavement or a public holiday). In the second case, the payroll company accepted permanent staff in a seven day a week operation being rostered off by the employer on every public holiday and not being paid at all on such days.
Employees
All employees received a written record of earnings; for most this included a record of their accrued leave. Although all employees were familiar with the concept of an employment agreement, three had never seen one and a further person had seen but not signed one. Although there were some union members in two of the firms in the research, the only employee on a collective agreement worked for a firm where none of the employees (including the employee in question) were in a union.
Employees were broadly aware that they had entitlements to leave under the Act. All of them were aware for example that there is an entitlement to annual leave, sick leave and bereavement leave and that their sick leave may be used for dependents. Employees were most familiar with the provisions which affected them most frequently. For example those working in hospitality and retail had a solid understanding of their entitlements for working and not working on public holidays. However none of the employees interviewed had an understanding of their specific entitlements across all provisions. A number of respondents were also unsure of whether the entitlements they received were statutory or unique to their place of employment.
Most but not all employees were aware that they got four weeks annual leave (none received any more than four weeks). However there were employees - in the retail and hospitality sectors - who were unsure of their annual leave entitlement. Not knowing what their entitlement was did not appear to be associated with the age of the employee, or their length of time in the workforce or in a particular job.
There is no holiday pay for the first three months, we get a percentage of our wage, after that normal holiday pay and public holiday rates apply. I don't know how much annual leave I will be entitled to after I have worked here a year.
Employee
Other examples of employees appearing unaware of their employment rights related to being erroneously treated as a casual employee, and being rostered off work - without pay - on every public holiday regardless of established work patterns.
All employees could name a source of information that they would use if they wanted more information about their entitlements (the Department of Labour website was commonly mentioned) but only one of them had ever looked for any information (when moving back to New Zealand rather than in relation to a specific job). All accepted what their employer offered, and several stated they would ask their employer first if unsure of an entitlement.
3.3 Perceptions of the Holidays Act 2003
In the research, employers were asked about their general attitudes to or perceptions of the Act. Note that at the time of the interviews only one employer was regularly employing staff to work on public holidays (a point which is discussed further on page 3).
Employers' responses can be categorised in several ways. In firms established after the fourth week of annual leave was introduced, employers did not hold particular views, having nothing to compare the Act with. The largest group of employers (all of whom had the payroll administered within the business) simply accepted the Act as part of being an employer, while noting that the fourth week of annual leave had been a cost which the business had to absorb. This attitude existed across sectors and amongst both small and medium employers. Employers who contracted out payroll services to external providers did not have any particular view of the Act, stating that they knew very little about it. The most negative perceptions of the Act were expressed by: a larger employer in the hospitality sector who generally traded on public holidays, and a small manufacturer experiencing very difficult trading conditions. In both of these cases their views were related to the direct costs imposed by the Act rather than the calculations required.
3.4 The calculation of pay for leave
This section of the report looks first at how employers involved in the research understood and calculated pay for leave, and then discusses employers' views of the complexity of the calculations.
3.4.1 Relevant Daily Pay
Background
Relevant daily pay is a concept introduced by the Act. It applies to the calculation of an employee's pay when they take leave because of a public holiday, or because they take sick leave, bereavement leave or an alternative holiday. Relevant daily pay should reflect what an employee would have been paid if they had worked on the day in question. In cases where this amount is not clear the Act provides an averaging formula.
Relevant daily pay has been a focus for employer discontent with the Act due to the inclusion of productivity payments, shift allowances and other changeable elements of pay 'significantly inflating leave costs for many employers ' (BusinessNZ 2005). BusinessNZ also considers relevant daily pay difficult to understand and apply - for both employers and employees. A survey of their members in 2005 found that somewhere between 22 percent and 33 percent of respondents agreed that they had difficulty calculating employees' entitlements using relevant daily pay.[4] Relevant daily pay is also said to have created perverse incentives for employees to take sick leave (BusinessNZ 2005, Meat Industry Association 2005).
The implementation evaluation of the Act conducted on behalf of the Department of Labour in July 2005 (Capital Strategy) also found that one of the major issues with implementing the Act was the complexity of calculating employees' entitlements, particularly in relation to relevant daily pay. The complexity centered on the many variables involved in making the calculation and the need to manually adjust payrolls at the individual level. Both the Small Business Advisory Group (2006) and BusinessNZ (2005) have stated that a lot of the difficulties with the Act for employers would be resolved if the formula for calculating the pay rates for public holidays reverted to using ordinary pay[5] as the basis of calculations.
How employers are calculating relevant daily pay
In the research, employers who managed their own payroll or firms' payroll administrators were asked if they were familiar with the relevant daily pay concept. Most of the firms in the research, across sectors, had at least some staff whose hours varied every day or every week. Note that the firms with staff currently working regular hours included a manufacturer whose employees were on short time but who in less straitened circumstances had worked overtime, and a transport operator whose staff currently worked regular hours locally but with previous contracts had worked irregular hours. (That is, employees with regular hours at the time of the research did not necessarily always work regular hours.)
The research found that respondents could be categorised in four ways. The two employers who contracted payroll and leave administration to external providers had not heard of relevant daily pay, but neither had they encountered a situation in which it might have to be applied. One of these firms employed its two regular staff as casual workers and did not pay them for sick leave, bereavement leave or public holidays. The other - a new business in the hospitality sector - rostered staff off on public holidays, did not pay them for those days, and had not yet encountered staff taking sick or bereavement leave.
A second group was not familiar with or only vaguely aware of the term relevant daily pay and it was not entirely clear whether staff were consistently paid according to the principles. Employees in these firms did not regularly work varying hours per day or week. This group included employers/payroll administrators who used manual systems and payroll software.
A third group both knew the term and followed the principles. These were employers/payroll administrators in firms where employees regularly worked differing number of hours per day and week. This group used the averaging formula when calculating relevant daily pay for employees with irregular hours because in their respective workplaces it was unknown - at the beginning of a working day - exactly how long an employee would work that day.
Finally, one employer who was familiar with the relevant daily pay concept found it simpler, using a manual pay system, not to observe the Act but to pay a flat daily rate if staff were absent. In this firm the employees did not work the same number of hours every day and thus may have been advantaged or disadvantaged by the employer's practice depending on which day they were away from work.
Table 4 below shows the range of approaches employers have taken in circumstances when the relevant day pay concept applied.
| Level of awareness of relevant daily pay | Approach taken |
|---|---|
| Unaware of relevant daily pay, uses external payroll service | Employer rosters (permanent) staff off on any public holiday and they are not paid at all for that day. Employer has no experience yet of staff being on sick or bereavement leave. |
| Unaware of relevant daily pay, uses accountant's payroll service | Employs two people to work alternate 5 day, 40 hour weeks. Pays employees as casual workers, with 8 percent added to their hourly rate and no pay when they do not work, i.e. for sick or bereavement leave or public holidays. |
| Unaware of relevant daily pay, employer manages pay and leave | Employer works on public holidays rather than have staff working then because of the requirement to pay time and a half and give staff a day in lieu. (The business trades shorter than normal hours on public holidays but the day in lieu is 'presumably' a whole day off.) Staff (who have regular hours) are paid what they would have earned on the day. |
| Unaware of relevant daily pay, has in-house payroll | Payroll software calculates entitlements, the actual calculation is unknown. The shop is closed on public holidays. Public holidays which fall on weekends present difficulties because there is no set weekend staff member. If a public holiday falls on a weekend, it is too difficult to work out who ought to be paid so no one is. |
| Unaware of relevant daily pay, has in-house payroll | Staff are on short hours, but have been paid for public holidays which fell on non working days. |
| Unaware of relevant daily pay, has in-house payroll | Employees paid at eight hours per day if on sick or bereavement leave or for a public holiday although they 'typically work longer than eight hours but not every day.' |
| Aware of relevant daily pay, has in-house payroll | Uses the averaging formula to calculate relevant daily pay. Employees' daily hours are irregular, and unknown at the beginning of any given day. |
| Aware of relevant daily pay, employer manages pay and leave | Pay for public holidays, sick and bereavement leave is calculated at eight hours (irrespective of whether the employee might have worked longer or shorter hours on that day) 'because it is simpler.' |
Employees' understanding of relevant daily pay
As discussed previously, employees interviewed were aware of having entitlements to various types of leave but were not aware of the relevant daily pay concept, and did not know how specifically sick or bereavement leave, or pay for a public holiday would be calculated. When questioned, their expectation was that such days would be paid as for a normal working day (generally assumed to be eight hours by those working full time) even in those cases where the employee rarely worked only eight hours a day.
The cost of miscalculations
The way in which non-compliant employers calculated pay in relation to public holidays, sick leave and bereavement leave tended to negatively affect employees (e.g. paying days off at a flat eight hours regardless of staff's actual working time, rostering staff off on public holidays and not paying them on those days, and incorrectly treating staff as casuals and not paying them at all for public holidays, sick or bereavement leave).
Sometimes the employers' approach was a cost to the firm (e.g. paying staff for a public holiday when it fell on a day of the week staff no longer worked). In addition, when considering the way in which the employer dealt with the entire remuneration package for an employee, some of these negative effects were evened out. For example, in the case where - 'in the interests of simplicity' - employees were always paid at eight hours for public holiday, sick leave and bereavement leave regardless of how many hours they would have worked on that day, employees were paid over lunchtime - also 'in the interests of simplicity.'
The actual amount of money in question ranged widely. The way in which employers were calculating entitlements when relevant daily pay should have been used may have cost employees a few hours or several days of pay (potentially more than 11) over a year.
Is there an alternative calculation?
Employers were asked whether there was an alternative calculation that would make it easier to calculate holiday pay, while maintaining current employee entitlements. Neither employers, payroll administrators nor employees considered that any alternative calculation would be preferable. The sole suggestion made by one employer was that relevant daily pay be calculated using a two week rather than four week averaging formula.
Are employees taking advantage of relevant daily pay?
Submissions to government from business associations have noted that the Act creates incentives for employees to maximise use of entitlements to sick leave because, with relevant daily pay, they cannot now be paid less for not working (due to sickness or bereavement) than they would be paid at work (Meat Industry Association 2004, Tourism Industry Association 2004, BusinessNZ 2005). However data on the actual extent of this is lacking.
The research did not find any examples of employees abusing sick leave related to relevant daily pay. Employers had not encountered employees taking sick leave on particular days in order to be paid at a higher rate - this may be related to the fact that none of the employees interviewed for the research were aware of what their specific entitlements were under the Act. One employee was surprised to discover he was paid for seven hours on a day he had taken sick leave, when he might have expected to work for four hours on that day.
In another case an employee stated they would endeavour never to be off work on the day they generally worked 10 hours as they would be paid for only eight hours - the number they worked on all other days. The employer in this case also stated that days off due to sickness or bereavement leave were paid at eight hours a day regardless of the pattern of work hours on that day of the week.
Few employees in the research acquired alternative holidays through working on a public holiday. However those that had preferred to 'add them to annual leave,' that is, used them on planned longer breaks rather than taking it on a particular day of the week that would have maximized its advantage to them.
3.4.2 Payment for annual leave
Background
Under the Act, payment for annual holidays is at the greater of the ordinary weekly pay[6] at the time the holiday is taken or the employee's average weekly earnings[7] over the 12-month period before the annual holiday is taken.
How employers are calculating annual leave
All firms in the research were paying most of their staff an hourly rate (excluding some office staff). Across the sectors involved, some firms' employees' weekly hours were unvarying, others occasionally varied and some varied every week. Thus the employers/payroll administrators in most firms in the research were required to make some calculations for annual leave payments. The range of pay calculations made is shown in Table 5.
| Employees' weekly hours | Range of pay calculations made for annual leave |
|---|---|
| Weekly hours vary(n=4) | Uses comparative averaging formula calculated by payroll software |
| Weekly hours occasionally vary | Uses comparative averaging formula calculated manually |
| (n=4) | Uses comparative averaging formula calculated by payroll software |
| Weekly hours standard | Pay for annual leave at the standard weekly amount |
| (n=3) | Pay as you go of an additional eight percent of pay |
The research found that employers or payroll administrators in firms where employees worked an irregular number of hours each week knew that an averaging calculation was required to determine payment for annual leave. While only some could specifically describe the comparison between ordinary weekly pay and average weekly earnings, others appeared to make the same calculation through using payroll software despite being unaware of the exact form the calculation took. Employers did not remark upon the complexity or time taken to make this calculation.
As with pay for sick, bereavement leave or public holidays, employees were unaware of the calculations that were used to work out pay for annual leave. They assumed that - if their pay was within the parameters they expected - their entitlement was worked out correctly by their employer/payroll administrator.
3.4.3 Perceptions of complexity
Employers or payroll administrators were asked specifically about how complex or time consuming they found it to make the required holiday and leave pay calculations. All of the firms in the research had some employees who currently or had at some time worked varying daily or weekly hours.
The employers who contracted the pay administration out to external providers had no view on the complexity of calculations the Act required. These firms included a long established business and one that post dated the Act.
Employers administering wages and leave themselves reported only preliminary difficulties with calculating leave when the Act first took effect. In this sense, the calculations have become easier over time. The Holidays (Transfer of Public Holidays) Amendment Act 2008 had also simplified calculations for those firms whose employees worked past midnight on a single shift.
In the cases studied, none of the employers/ payroll administrators considered pay calculations under the Act to be difficult to understand. This view was held by employers/payroll administrators irrespective of their level of understanding of how entitlements were calculated. There were clearly areas that some did not understand, as shown in Table 3 and Table 4. The most complex (and unresolved) situation encountered was who to pay on a public holiday when the public holiday fell on a day that was not regularly worked by any particular employee - that is, a weekend day on which various staff would offer to work.
All but one employer in the study considered that the relevant daily pay and annual leave calculations were not time consuming. Again, this view was held irrespective of the level of understanding of how entitlements were calculated. For example, one employer said that when he had 49 staff (last year), the payroll took two hours regardless of particular events that might have occurred in that pay period, and that one of those hours was spent checking timesheets (an activity not affected by the Act). Only the largest employer (with 75 staff) considered the pay calculations necessitated by public holidays to be time consuming (rather than complex), estimating that it added another day to the pay administration.
Preparing the timesheets for the payroll service takes twice as long as a normal pay period when there has been a public holiday because we have to go back and check the previous 4-5 weeks in order to work out the average amount earned on that day of the week. Since the Act we have not paid the accountant or the payroll firm more (related to the Act) but it takes the (internal) administrator more time - and on public holidays we run the pay a day later.
Employer
One payroll administrator with many years of experience considered that once the principles of the Act had been understood, it was not particularly difficult and that administering a payroll has been 'more complex (years ago) when unions had their own quirky bits tacked on to everyone's pay.' Two employers observed that larger employers would be more affected by the Act because of the need to calculate relevant daily pay for more individuals and the additional difficulty covering annual leave.
No employer with any comparative experience felt that accountants or payroll services had charged them more because of the Act.
3.5 The accumulation of leave
3.5.1 Annual leave
Respondents were asked whether the Act had changed the accumulation of annual leave by employees. The firms in the research managed annual leave differently but none of them had issues with the accumulation of annual leave - rather, it was covering for staff on leave that was problematic.
Some firms (in the manufacturing and transport sectors) had a close-down period for around 15 days. One of these firms had also - in response to the Act - introduced a roster for the remaining annual leave so that it could be managed throughout the year. Another firm had included a clause in its employment agreements with staff that each 12 month's allocation of annual leave would be taken within a certain time period. However, although employers in the larger SMEs actively managed annual leave, some were also open to staff accumulating leave for a particular purpose or made other provisions that enabled, for example, staff to be overseas for extended periods.
The businesses in the retail and hospitality sectors did not have a close-down period, but encouraged (rather than compelled) staff to take leave at quieter times. These employers too were open to staff accumulating leave for particular purposes, although it was not necessarily a simple matter for an employer in a very small business to manage the absence of an employee for several weeks or more.
It was noted by employees and employers in the transport sector in particular but also in manufacturing that a proportion of their employees had to 'apply themselves to use their leave.' For some employees in the research (in the transport sector) their interests and social life were at work and they were disinclined to take annual leave; others (in manufacturing) were interested in continuing to earn money during periods of annual leave by doing 'out work' at home.
3.5.2 Alternative holidays
Background
If an employee is required to work on a public holiday, and it would otherwise be a working day for the employee they are entitled to a whole day's alternative holiday (formally known as a day in lieu) at a later stage. This provision includes employees working shifts and some employees on call. All employees who have an alternative holiday owing to them get a full day off later, even if they only work for a small part of the public holiday.
An alternative holiday does not apply where an employee:
- works on a public holiday that is not otherwise a working day
- is on call on a public holiday and the restriction of being on call is not enough to deny the employee the enjoyment of the holiday
- is only employed to work on public holidays
- is scheduled to work on a public holiday but is unable to work because of sickness or a bereavement.
Are there issues with the accumulation of alternative holidays?
Employers were asked whether the Act had had any effect on the accumulation of alternative holidays. Amongst most of the employers across sectors there were no issues with alternative holidays because few or none of their employees (now) worked on public holidays - or, if they did, it would not be all of the public holidays but may only be one in a year.
Firms in the manufacturing and transport sectors were historically shut on public holidays. The transport operators in the research reported some ability to recoup costs if clients required them to operate on public holidays. In the retail sector one firm had chosen to shut because of the costs of operating on public holidays combined with the fact that many of their (commercial) customers were also not working on public holidays. In another case a retailer was obliged to open because of the shop's location in a mall, however the employer chose to work rather than employ staff because of the costs involved. Similarly in the hospitality sector, one firm was shut because most of their business came from a commercial building which was unoccupied on public holidays; another was shut because of the expense of employing staff and the opportunity the holiday provided the owners with to have a break from their seven day a week business. (Note that in this latter case the employer was not paying staff relevant daily pay as public holidays were considered to be rostered days off for staff.)
One of the issues for retailers in this research was that shop trading hours on public holidays were shorter than those on a normal working day but that staff working on a public holiday would be given a whole day in lieu. This increased the employers' disincentive to have staff work on public holidays.
For the largest employer in the study, the cost of providing staff with alternative holidays was noted but the employer had no issues with the accumulation of days or when they could be taken. If 'over a certain number' of alternative days accumulated the employer would buy them back - at the employee's request. It was noted by the employer that the alternative day would probably be taken by the employee on the day of greatest financial advantage to that person. Employees with experience of having alternative days commonly said they added the in lieu days to their annual leave. In one firm where employees worked varying hours per week, one employee stated that 'In quieter times we might get down to 28 hours a weeks, I would take in lieu time then to make up the hours in pay.'
3.6 Treatment and entitlement of casual employees
3.6.1 Background
The Holidays Act 2003 contains no reference to casual work because the term is loosely applied to many types of employment arrangements. Instead, the Act refers to intermittent or irregular employment. An example of intermittent or irregular work for the purposes of the Holidays Act is a retired employee called back in emergencies to cover for sickness. Generally, these are employees whose employment is triggered by an event that cannot be accurately anticipated, or whose work pattern can be described as so irregular or intermittent that the concept of four weeks away from work is difficult to apply. In such cases, an arrangement can be agreed to add to their pay eight percent of the employee's gross earnings as annual holiday pay. For these employees, the arrangement must be by genuine agreement and be included in the employment agreement, and the eight percent annual holiday pay should appear as a separate and identifiable amount on the employee's pay slip. At the end of the employment relationship, no additional pay for annual holidays is due.
3.6.2 The effect of the Act on the employment of casual staff
Employers were asked if they employed casual staff in their business, and if so, to describe the circumstances and the nature of the employment arrangements with casual workers, and how their use of casual workers had changed over time.
The research found that there was not a high demand for casual staff in any of the firms involved in the research. Employers, regardless of size or sector, wanted to be able to manage their business with a regular workforce. Although half of the firms made use of casual staff, their use related to intermittent or irregular work (filling in for the absence of permanent staff or meeting unusual need). In many of these instances, the casual employee was a former employee. This overcame the main difficulty other firms had with using casuals - that of finding someone who could step straight into the role. Where firms could not find such a person, the employer and other employees covered the gap.
The main effect of the Act on the use of casual workers related to the increase in annual leave - firms now have to cover for employees having four weeks annual leave each year rather than three weeks. Firms in the manufacturing and transport sectors had a close-down period over Christmas and New Year which reduced this demand for casual staff but they were still used in these sectors to cover for absence or to meet particular customer demand. The research found no indication that the use of casual staff had increased since the Act in order to avoid dealing with some of its provisions.
Aside from the use of genuinely casual staff, in one case employees whose working hours were not intermittent or irregular were being defined as casuals. These employees received an additional eight percent added to their pay but did not receive sick leave, bereavement leave or pay for public holidays. However this situation was not a consequence of the Act but was an established practice of the firm. The pay and leave in this firm was managed by an external service who had never questioned the practice. In another firm, an employee considered herself to be a casual worker (perhaps because she worked varying daily and weekly hours) although she was accruing annual leave and her employer considered her a permanent employee.
3.7 Canvassing changes to the Act
This section describes employers and employees' views on several possible changes to the Act.
3.7.1 Cashing in annual leave
The Advisory Group reviewing the Holidays Act will consider whether employees may choose to request trading some part of their minimum annual leave entitlement for cash. In the research, employers and employees were asked for their views of employees having this option.
Employers' views
Unsurprisingly, given the difficulties posed to most of the firms in the research with covering for staff on annual leave, employers across the four sectors were interested in employees having this option, even if they were not in a position currently to accede to employees' requests to sell back leave.
The real impact is replacing people who are on leave. The calculation of entitlements doesn't add extra work. I do more work and we lose work and we use casuals; extending annual leave has created 30 percent of a problem above and beyond the financial aspect.
Employer
Employers were however aware that some staff (noted particularly by employers in the hospitality sector) would sell back as much leave as they legally could and were concerned that staff had adequate breaks from work. Employers also raised the question of staff's ability to cope if after using their annual leave and cashing up some of it, they then wanted time off.
Employers held a common view that selling annual leave should be at the employees' request with the employer having the right to accept or decline the request, and further, that cashing up a week's leave year one year did not imply that this arrangement would necessarily happen again a following year.
Across all four sectors, employers commented on having bought back leave at some point and in various circumstances, for example, where an employee had accumulated considerable annual leave, or asked to come back to work early from a period of annual leave. Employers in both the transport and hospitality sectors noted that staff sometimes asked for - and received - advances on pay (for which accumulated annual leave was a form of security for the employer).
Employees' views
None of the employees interviewed had ever requested that their employer buy back leave but most - although not all - were interested in having this option. Several (all of whom were in manufacturing jobs) said that they personally would prefer to take their leave. An employee in a firm which closed down over Christmas pointed out that with the business closing down for three weeks, she had only one other week to use during the year and consequently never really accumulated any leave.
When asked if they could see any disadvantages with having the sell back option, a few felt it was possible that an employer may intimidate an employee into doing what was most convenient for the employer. One of these employees further mentioned that the peer pressure of their colleagues could also be brought to bear against someone unwilling to comply with a request to sell a week's leave (i.e. in situations where the person having a holiday would leave colleagues with additional work).
3.7.2 Transferring the observance of a public holiday to another day
The Holidays (Transfer of Public Holidays) Amendment Act 2008 amended the Holidays Act 2003 to allow employees working night shifts that start or end on a public holiday to transfer the public holiday, by agreement with their employer, so that the public holiday covers one whole shift. Research respondents were asked for their views on expanding this provision to allow for transfer in other circumstances such as for religious or business reasons.
Respondents approached this question thinking about whether transfer was both feasible in their work circumstances and whether it was a socially desirable concept. They also thought about whether the possibility applied to single employees or all of the employees in a workplace requesting to transfer observance of a public holiday. In the situation where a single employee asked to transfer observance, there was some confusion over how this was different to an employee working on a public holiday and having an alternative holiday. One employer speculated about whether this would mean an employee would be paid at the normal rate (rather than time and a half) on the actual public holiday in question.
If an employee wished to transfer observance to a day of religious significance, respondents considered that this choice was available through taking annual leave. In workplaces that were normally shut on public holidays, employers generally considered it would be unfeasible to have one person working.
Two firms had experience of the effective transfer of public holidays, for recreational rather than religious or business reasons. It had happened - rarely - when a public holiday fell on a Tuesday or Thursday and employees agreed they would rather work that day and observe the holiday on the Monday or Friday, thus extending their weekend. However where all employees in a workplace were asking that observance be transferred, it was feasible only where a business could work - at least on that day - independently from other businesses being open.
Objections were raised to the concept of transferring observance by some employers and employees. These centred on the principles of observing the holiday on the day it fell (particularly Anzac day), and people observing the day en mass - as a public holiday. It was also observed that schools were closed on public holidays, and that parents generally preferred to have the same public holidays as their children.
3.7.3 The treatment of public holidays including Easter Sunday
Respondents were asked for their views on the current treatment of public holidays in terms of whether they are taken when they fall and the restricted trading hours that affect some.
Employers in the study were resigned to the cost of public holidays whether they were affected by all of them or not. Employers that did not trade on weekends were most affected by whether Anzac Day or Waitangi Day fell on a weekend thus saving them paying staff on that day. Restricted trading hours affected only the retailers in the study, and they were indifferent to it as one retailer worked himself rather than have staff work on public holidays and the other shut on public holidays, thus it was an opportunity for time off work for him - albeit with the cost of not trading on that day.
In terms of restricted trading hours, respondents were concerned with the fairness of the situation rather than whether people were able to shop every day. Hence there was a common view that all businesses should be affected in the same way by public holidays. Some employers and employees felt this was best expressed through businesses having the choice to open or not. Others (employers and employees) considered that an absence of regulation would diminish what might be called the national identity reinforced by public holidays, and further that if a business had the choice some employees would be obliged by their employer to work whether they wanted to or not. Their solution therefore was for all businesses rather than some to be affected by current restrictions on trade.
In those sectors where businesses commonly trade on public holidays (in the retail and hospitality sector) employers were of the view that the current situation - anomalous as it was - should be left alone. When asked, employers were - obviously - not keen to see Easter Sunday be made a public holiday and employees in these sectors were just as clearly interested in having an additional public holiday.
3.8 Changes to employees' entitlements
Employers and employees were asked what impact the Act had had on employee's entitlements. The change from three to four weeks' leave was the major impact mentioned by both employers and employees. While the increased entitlements for those working on public holidays registered with all employers, they were cited in response to this question only by the two employers who regularly traded on public holidays.
Some employers considered that the Act - in raising minimum entitlements - had 'reduced the carrots available' for employees, that is, had removed the employer's financial ability to be able to provide additional benefits to employees. Certainly the raising of employee entitlements through the Act had some consequent negative effects for employees in either absolute or relative terms. In one manufacturing firm with employees earning the adult minimum wage, the increase in entitlements through the Holidays Act in combination with a rise in the minimum wage on 1 April 2009, resulted in the employer removing the higher hourly pay rate for those employees with long service.
Amongst the firms involved in the research, employees in the retail and hospitality sectors were all on three weeks annual leave prior to the introduction of four weeks. However, in manufacturing and transport firms some employees with long service already had four weeks. In one case where approximately 10 employees out of about 30 had this entitlement they remained on four weeks after 1 April 2007; in the other case, only two of the firm's employees out of 30 had long service and these two moved to five weeks.
No employees commented on the introduction of the relevant daily pay concept having had an impact on their entitlements. This may be due to their lack of knowledge of the concept and/or the lack of employer compliance or because the provision had not (yet) been invoked in their employment situation.
3.9 Firms' responses to the Act
Employers were asked whether they had taken any action in response to the direct and compliance costs of the Act.
Firms in the hospitality sector trading on public holidays applied a surcharge on public holidays which partially covered the additional costs. Transport operators, who rarely worked on public holidays, could also in some circumstances charge a higher rate for work then. Retailers had to absorb the costs of public holiday pay entitlements but minimized them either by employers only working on public holidays or by closing on public holidays.
The cost of the fourth week of annual leave contributed to one employer's decision to reduce an existing discretionary entitlement, and to one other employer not maintaining the relative leave advantage of employees with long service.
The increased difficulty of covering for staff on leave was addressed by one larger SME by bringing in a leave roster. The smaller firms in the study did not take any specific action to manage annual leave in response to the Act.
Employers had not observed increased productivity arising from employees' additional leave. However two employers felt the Act may have contributed slightly to an increased focus on productivity. In another firm the need to cover leave had 'perhaps' contributed to a decision to use time in the current economic downturn to train employees in a broader range of skills.
Firms made no changes to the methods used for administering pay and leave attributed to the Act.
Footnotes
[3] Although all employers knew of the Department of Labour website, none had used the online tool for calculating employees' entitlements.
[4] 52 percent of the 1,656 respondents had fewer than 21 employees, 21 percent had fewer than six.
[5] Ordinary daily pay excludes productivity or incentive-based payments (including commission), payments for overtime, bonuses and allowances etc.
[6] Ordinary weekly pay represents everything an employee is normally paid weekly, including: regular allowances, regular productivity or incentive-based payments, the cash value of board or lodgings, and regular overtime. Intermittent or one-off discretionary payments are not included in ordinary weekly pay; nor are any payments of any employer contribution to a superannuation scheme for the benefit of the employee. Where ordinary weekly pay is unclear for any reason, the Holidays Act 2003 provides an averaging formula for working it out.
[7] Average weekly earnings are determined by calculating gross earnings over the 12 months prior to the end of last payroll period before the annual holiday is taken, and dividing that figure by 52.