The long-awaited announcement from the government about its review of the Holidays Act 2003 (the Act) has now been made. The existing Act is to be replaced with a new Employment Leave Act (the new Act), which will make significant changes to how leave is accrued and paid.
If passed by Parliament, it is intended that there will be a period of two years before the new Act begins to operate, to enable employers and payroll providers plenty of time to make arrangements to transition to the new system.
While the new Act is unlikely to significantly affect workplaces where workers are salaried and work regular hours, the changes for workplaces where irregular and varied hours are worked (eg, in hospitality, health, retail and where shiftwork is a feature) are likely to be enormous.
A draft Bill to give effect to the changes has yet to be introduced to the House. In the meantime, the key changes are summarised below.
Annual leave to be based on hours worked
Current
Workers become entitled to four weeks' annual leave after they have completed 12 months' service.
Proposed
Annual leave will accrue from the first day of employment in direct proportion to the number of contracted hours of work.
The rate of accrual will be 0.0769 hours (4/52) per contracted hour, which provides four weeks' leave per year where the contracted hours do not change.
As hours accrue, they are "banked" for the worker, so that leave balances will reflect hours actually worked in the past. Leave can be used to take all or part of a day off by offsetting the number of hours' leave taken against the number of hours "banked" by the worker.
Any extra hours worked by a waged worker on top of their contracted hours will not accrue annual leave but instead a leave compensation payment will be made at the time the extra hours are worked. The leave compensation payment will be 12.5% of the worker's ordinary hourly rate.
Any extra hours worked by a salaried worker will not attract extra pay where the employment agreement specifies salary will compensate the worker for some additional hours.
Annual leave will accrue when a worker is on paid leave under any legislation and when on parental, jury and volunteers leave. It will not accrue where a worker is receiving accident compensation and not working, or on any unpaid leave.
Sick leave
Current
Workers are entitled to 10 days' sick leave per year, regardless of the number of days that they work each week, after they have completed six months' service.
Proposed
Sick leave will accrue from the first day of employment in direct proportion to the contracted hours of work at the rate of 0.0385 hours (2/52) of sick leave per contracted hour. This provides the equivalent of 10 days per year for a worker who works five days per week and the same hours every day. There will be a cap of 160 hours – once hit, no further leave will accrue until the worker has used some of their stored entitlement.
Workers will be able to take sick leave in hours rather than days – for each hour taken, they will use an hour of their stored leave.
Sick leave will accrue when a worker is on paid leave under any legislation and when on parental, jury and volunteers leave. It will not accrue where a worker is receiving accident compensation and not working, or on any unpaid leave.
Bereavement leave and family violence leave
Current
Workers have to wait six months to become eligible for bereavement leave and family violence leave.
Proposed
All workers will be able to access both types of leave from the beginning of their employment. They will remain as days-based entitlements, but workers will be able to take part days of leave.
Public holidays and alternative holidays
Current
Where a worker works for any amount of time on a public holiday that is an otherwise working day, they currently receive a whole day off at another time as an alternative holiday.
Proposed
A new test will be introduced to clarify whether a public holiday would be an "otherwise working day" for a worker. The test will be based on whether the worker has worked 50% or more of the relevant day (eg Mondays if the holiday falls on a Monday) in the previous 13 weeks.
Alternative holidays will be accrued at a rate of one hour for every hour that is worked on a public holiday that is an otherwise working day.
Casual workers
Current
Workers whose work is intermittent or irregular (often referred to as "casual" although there is currently no legal definition of a casual worker) can agree to be paid a loading of 8% on their wages instead of taking annual holidays.
Proposed
All workers who have no contracted hours will receive a leave compensation payment of 12.5% of their ordinary hourly wage in every pay period. This is instead of accruing annual leave and sick leave. This will be a separate component of their pay and must be shown separately in the employee's records and pay slips.
Fixed term workers
Current
Fixed term workers' entitlements will vary according to the length of the fixed term. The term needs to be at least 6 months for them to receive sick leave or bereavement leave.
Proposed
All fixed term workers, regardless of the length of the fixed term, will accrue and be able to take annual and sick leave from the first day of employment, based on their contracted hours. They will also have access to bereavement leave and family violence leave.
Payment for leave
Current
Different calculations are required to be made to assess the rate of pay applicable to different types of leave.
Public holidays, sick, bereavement and family violence leave are all paid at the worker's relevant daily pay.
Annual leave payments are to be made at the higher of the worker's ordinary weekly pay and average weekly earnings at the beginning of the holiday, which in turn will involve calculation of the worker's gross earnings (which may or may not include commissions and bonuses) for the past 52 weeks.
Proposed
The same hourly leave pay rate will be used for all types of leave, based on a worker's base wage for the day of leave.
The hourly leave pay rate will also include fixed allowances but will not include bonuses, commissions and variable allowances.
For piece workers, an average hourly rate will be used.
Parental leave
Current
Payments for annual leave for workers returning from parental leave are based on the average earnings over the previous 12 months, which has the effect of reducing the value of their annual leave if taken in the 12 months following their return.
Proposed
Because leave entitlements will continue to accrue during periods of parental leave, workers returning to work following a period of parental leave will be able to take fully paid annual leave.
Pay statements/pay slips
Current
Although there is no obligation on employers, it is common practice for payslips to be provided.
Proposed
Employers must provide a clear pay statement each pay period itemising pay and leave in a way that is easy to understand. There will be flexibility around how this is to be provided.
Cashing up annual leave
Current
Workers and employers may agree that up to one week of a worker's annual leave entitlement may be "cashed up". There is no obligation on the employer to agree.
Proposed
Workers and employers may agree that up to 25% of a worker's outstanding leave balance may be "cashed up".
There is no obligation on the employer to agree.
If you have any questions about the proposed changes, our Employment Team is here to help. We will be closely monitoring the progress of the Bill and will provide updates as appropriate. If you wish to make a submission to the Select Committee once the Bill has been introduced to the House, we would be happy to assist – please get in touch.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
