Holidays Act

Bending the Rules

December 19, 2017
Bending the Rules | Blog
Sam | PayHero Resource Author


Payroll Expert

With a couple of teenagers we have a lot of rules around the house. There’s a fair bit of bending of said rules. School holidays, sleep-overs or preoccupied parents tend to mean the rule book gets thrown out.

Sometimes we wish we could do the same with the Holidays Act. We’ve previously covered some of the craziness in the Act and ways to correct it. Here’s another example of what atrocious legislation it is.

Section 34 (2) covers paying staff who have been working less than a year when you have a closedown, very relevant with the holidays approaching. It states that these employees must be paid 8% of their earnings since they began (less any leave previously taken or paid out).

Here’s what’s wrong with that concept. Take an employee who started last January so hasn’t yet had any annual leave become due (annual leave only becomes due on their employment anniversary). If, as an employer, we insist that the employee can only take leave when it becomes due and then have a three day ‘closedown’ between Christmas and New Year then this employee would get their 8% holiday pay paid out, and their leave anniversary would get moved to next December. The result is that the employee would have had to work for 23 months before being officially entitled to take any leave aside from the three days between Christmas and New Year.

In case you think that sounds so crazy I must have it wrong, here it is in a flowchart by MBIE.

This is completely at odds with the purpose of the Holidays Act. The very first line in the Holidays Act states the purpose is to provide employees with minimum entitlements to annual holidays to provide the opportunity for rest and recreation. Any employee who has accrued more than enough leave to cover the closedown will be disadvantaged by the application of this rule.

The rationale behind it is hard to fathom. A lot of the Holidays Act seems to assume people are running manual systems and therefore don’t keep track of the accrual of annual leave from pay to pay. The vast majority of companies allow (if not encourage) employees to take leave in advance (i.e. before it becomes due at their next anniversary). Why not just let them do this during the closedown?

Furthermore, it’s fine for employees who have been with the company for more than a year to take leave in advance if they’ve used up all their entitlement – what’s so different between them and newer employees?

Just taking leave in advance would also mean you don’t need an entirely new set of processes for handling the closedown. As the rules stand you need to pay out holiday pay less the value of annual leave taken – essentially the calculation done for final pays. Then the next leave anniversary needs to be reset. And if the employee has applied for regular leave during this period, perhaps using automated leave requests as in FlexiTime, these need to be removed.

Officially we need to advise people to comply with the Act. But we would really, really love to advise our customers to treat everyone the same over a closedown period. It’s sensible, fair, understandable by employees and simpler. We’d love to recommend they ignore the 8% rule. We’d love to, but of course we wouldn’t. But we really would love to.

Now it’s time for me to go and enforce the rules around bed time. Wish me luck…

Sam | PayHero Resource Author


Payroll Expert

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