The Government has announced that a Holidays Act Working Group will be established to carry out a full review of the Holidays Act 2003.
In recent times, it has become clear that there are widespread compliance issues with the Holidays Act. MBIE estimates that between 10 to 40% of the workforce could be affected by Holidays Act compliance issues with a potential cost to the economy of between $292 million and $2.29 billion.
Previous efforts to address compliance issues have focused on identifying issues with payroll systems and making holiday pay arrears payments to employees. However, it is now widely accepted that there are issues with both the implementation of the legislation and the legislation itself.
The purpose of the Working Group's review is to make recommendations for change that:
- Provide clarity and certainty around entitlements for both employers and employees;
- Are simpler and more readily applicable to irregular working arrangements than the current Act;
- Will be user-friendly with payroll systems;
- Minimise compliance costs for employers; and
- Protect employee entitlements.
Ultimately, these recommendations may lead to legislative changes that will establish a simpler and more user-friendly framework fit for the present and future employment landscape.
While this will be welcome news for many employers, the Working Group, which will be made up of employer, worker and government representatives, is not expected to report on its recommendations until mid-2019. Any legislative changes arising from the Working Group's recommendations are likely to be at least two years away.
Until then, employers are expected to ensure compliance with the current Holidays Act. The Labour Inspectorate will continue its compliance monitoring functions through audits and investigations.
Employers should note that the repercussions of non-compliance are serious. Employers who are found in breach of the Holidays Act will be required to back pay all current and former employees any arrears owing for the previous six years. Arrears payments can be significant and estimates from MBIE suggest that employees could be owed, on average, between $250 and $500 per year.
For more serious cases of non-compliance, employers may be liable to pay penalties of up to $20,000 per breach – in addition to any arrears payments. The Act also provides that where the breach is committed by an entity such as a company, a person who is an officer of the entity may be treated as a person involved in the breach and may be held personally liable to any penalties or arrears payments. This includes directors, partners and any other person who is in a position to exercise significant influence over the management or administration of the entity. This can extend to HR, payroll managers and even external advisors.
We recommend that employers continue to take a proactive approach to ensure compliance with their obligations under the Holidays Act by auditing their payroll systems and ensuring they are correctly configured and that the correct method of payment is being used in every circumstance.
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