4 DISCUSSION

4.1 Awareness & perceptions

Employers were most familiar with the minimum standards of annual leave and entitlements related to public holidays. Other provisions of the Act were less well known specifically. Information on the Act was sought by employers or payroll administrators as required, and Department of Labour and Inland Revenue web based information generally answered employers' queries as the need arose. In some situations, information was not sought through a lack of awareness that it ought to be or because of the desire to do things more simply.

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 few had ever sought any. Rather, employees assumed employers were paying them the correct amount in relation to holidays and leave. This assumption appeared to some extent to be grounded in the informal employment relationships participants had, in which both employers and employees felt there was 'give and take' in the employment relationship.

The findings of the research in relation to employer knowledge are in line with the results of the implementation evaluation of the Holidays Act 2003 which found that employers wanted information on a need to know basis (Capital Strategy 2005) and with observations made by the Department of Labour's Small Business Information Unit (2008) when offering training to employers, that there was little understanding of the practical application of holidays and leave legislation amongst owners of SMEs. The findings are also supported by a number of UK studies showing that employers address individual employment rights and their detail on a need to know basis, and that their knowledge further varies depending on how much they are confronted by the Act and the extent to which it is enforced. (Blackburn & Hart 2002, Dickens et al 2005, Meager et al 2002). The influence of employer-employee relations on employers' awareness and compliance with employment rights seen in this research has also been shown in other qualitative (Ram et al 2001) and quantitative studies (Forth et al 2006).

Employers' immediate responses when asked about their perceptions of the Act were focused on the costs of the fourth week of annual leave and to a lesser extent (because only one firm now regularly employed staff to work on public holidays) the cost of paying staff to work on public holidays. Other provisions of the Act (sick leave, bereavement leave and payment for casual workers under the Act) were not raised by employers. In firms established after the introduction of the fourth week of annual leave, employers were less focused on the cost of employee entitlements.

The industry sector of firms in the research was not associated with particular attitudes or awareness of the Act. More salient was when firms had been established, whether firms managed the payroll within the business, how many of the provisions of the Act significantly affected the business, and the impact of these costs, particularly relative to other business conditions.

4.2 Calculating relevant daily pay

Amongst employers and payroll administrators, familiarity with the relevant daily pay concept varied. It appeared to be most closely associated with the extent to which employees worked irregular days or weeks in a firm. Where employers/payroll administrators were not familiar with relevant daily pay it was unclear whether (through using payroll software) they consistently paid staff according to its principles. Lack of awareness or non-compliance with the relevant daily pay concept was not associated with a particular sector and occurred in firms both where pay was administered in-house and externally. There was no pressure from employees in the firms studied to apply relevant daily pay calculations, and a notable lack of advice from external providers of pay and leave administration services. It was then up to the employer to comply with the Act.

Employers/payroll administrators did not consider it difficult to determine pay for staff on leave in circumstances when relevant daily pay applied. The calculations were considered time consuming only for the largest employer because they had to be addressed on an individual staff member basis. There was no obvious alternative calculation that would be much less time consuming for such employers that would retain 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.

Neither the compliance costs nor the direct costs of relevant daily pay were a significant issue for the firms in the research (even the largest firm in which the employer considered that it added considerably to payroll administration time). However, in other industries (for example, where commission or productivity bonuses are paid) relevant daily pay may pose more significant costs to a business.

Responses from employers and employees suggested that employees regarded any day away from work through sick leave, bereavement leave, a public holiday or an alternative holiday, as a standard or ordinary day (usually thought to be eight hours). 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 nature of the employment relationship in small and medium firms. The Meat Industry Association submission (2005), for example, would suggest that in other circumstances employees may have a greater awareness of relevant daily pay and may use these provisions to their maximum advantage.

4.3 Calculating annual leave payments

The terms used in the Act in relation to calculating pay for annual leave were not well known by most employers or payroll administrators, but there was an awareness amongst employers that some calculation was required if an employee did not always work the same number of hours every week. These calculations were not considered complex by employers regardless of the type of payroll administration they used (manual, payroll software or an external provider), 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 a varying number of hours per week.

Employees were unaware of how annual leave payments were calculated. They did not look for further information despite being able to name a source of information, assuming that their employer would pay the appropriate amount.

4.4 Accumulation of leave

The provisions of the Act in relation to staff working on public holidays were well known to employers and employees. Where a business regularly traded on public holidays, it was the cost of the alternative days rather than the management of these days that was an issue for employers. Alternative holidays did not have an impact on most employers in the study because they did not regularly employ staff on public holidays. This was due in some cases (in the retail and hospitality sectors) to the cost of paying time and a half and providing an alternative holiday to staff and in other cases to the established trading hours in the sector (in the manufacturing and transport sectors). Most employees in the study thus did not acquire alternative days as they did not work on public holidays. Where they did get alternative days, 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. Again, in this study, this may be related to employees' lack of awareness of the implications of relevant daily pay.

Additional annual leave granted under the Act 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. Employers considered that employees would welcome having this choice both because in their experience some employees would prefer having the money and because some employees struggled to use their annual leave. Potential risks centered on employees fully understanding the implications of selling back leave and the importance of staff having some time off work. Thus it was considered important that a maximum amount of sellable leave should be defined. 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. Risks were perceived by a few employees relating to employer and collegial pressure to sell leave.

4.5 Use of casual staff

Firms in the study that used genuinely casual staff did so in a way that met the test of casual defined in employment regulation. The Act had increased demand for casuals to cover increased annual leave in firms, particularly those that did not have a close-down period but it was not firms' preference to use casual staff over permanent employees regardless of firm size or sector. The key entitlement for casuals of eight percent of pay as 'pay as you go' holiday pay was well understood and adhered to.

There were instances of workers being paid (either partially or wholly) as casual staff when they were not casual. These instances were, though, unrelated to the impact of the Holidays Act in the firms in question.

4.6 Treatment of public holidays

Although the transfer of observance of public holidays was not an unknown concept to some of the employers and employees in the research, respondents were lukewarm towards the idea of extending the transfer of public holiday provisions of the Act. There was not sufficient clarity around how this 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 considered that options already existed for people to have leave on days of religious significance. There were also employers and employees who objected to the principle of public holidays not being observed on the day they fell. Respondents views on the current anomalies in the treatment of public holidays were centered on fairness, i.e. all business should be treated in the same way.

4.7 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 of the Act relates to regulatory change rather than the regulation itself.

The main impact most other 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 closing or the employer working the public holiday without any staff. This decision was determined by expected turnover, ability to apply a surcharge (not considered an option by retailers), and employers' attitude to simply closing on those days. Although the largest employer in the hospitality sector applied a surcharge on public holidays, this was considered only to partially cover the additional costs. Other responses from employers to the direct costs of the Act affected employees' previous entitlements in either absolute or relative terms.

Overall, however, the Act was seen as a minor constraint by employers, particularly compared to product and labour market constraints. This view is congruent with the UK research on the impact of employment regulation, which has shown that the product market is the overriding factor affecting business performance (Edwards et al 2003, Dickens et al 2005, Carter et al 2006).

4.8 The effect of the Act on SMEs

This study focused on SMEs because surveys on compliance costs and submissions to government on the Act suggested SMEs may face higher compliance costs than larger businesses (per full time equivalent staff member). This is in part attributed to the lack of specialist resources within small firms, and also to the higher marginal cost of, for example, payroll software for small firms. In this study, the method of administering pay and leave was not associated with differences in compliance costs. Further, the largest employer had the highest compliance costs because of the number of employees for whom relevant daily pay had to be calculated. This finding is congruent with other work which has shown that regulation does not have uniform consequences for small business owners and, looking more widely than compliance costs, that the negative effects of workplace legislation tend to increase with firm size (Ram et al 2001, Edwards et al 2003, Dickens et al 2005, Kitching 2006).

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