New Zealand business owners and employers are constantly trying to balance staff management, productivity, leave entitlements and health and safety while keeping up with complex legislation. Employers have to ensure compliance with laws to avoid costly penalties and operational disruption. One of the important legislations they need to follow is the Holidays Act 2003.
Understanding the Holidays Act 2003
The Holidays Act 2003 (the Act) is the fundamental piece of legislation outlining leave entitlements for employees. This Act aims to legislate a balance between work and other aspects of the lives of employees.
It is important for employers to know that whether an employee is full-time, part-time, fixed term or casual, they are entitled to some form of annual leave or holiday.
As an employer, it is important to understand the leave entitlements outlined in legislation, and how to ensure you are accurately complying with these requirements. The Act outlines that:
- accurate records must be kept for all employees of hours worked, the pay for these hours, and the details relating to any leave taken
- all employees are eligible to take annual holidays when they have completed 12 months of continuous employment for an employer
- employees are also entitled to sick and bereavement leave
- employees are entitled to a paid day off on a public holiday, if they would normally work on that day, or payment at a rate of time and a half should they actually work on that day
What are employees entitled to under the Holidays Act?
Under the Act, employers must extend a minimum amount of annual leave to employees in addition to paid public holidays, sick leave and bereavement leave.
Below are the specific minimum entitlements based on legislation:
- four weeks of paid annual leave after every 12 months of continuous employment for the same employer
- at least 11 national public holidays and one regional anniversary day. If necessary, the employee can agree to transfer the observance of a public holiday to another working day to meet the needs of the business, if both parties agree
- at least 10 days of sick leave each year once they have been working for you continuously for 6 months, or they have worked for you for a period of 6 months for an average of 10 hours per week, and at least 1 hour in every week or 40 hours in every month
Are holiday entitlements the same for casual employees?
Casual employees may also receive entitlements if they work on public holidays.
However, when it comes to holiday pay, casual employees can instead receive this entitlement as a regular component of their pay. This should be agreed in the employment agreement, should be paid at a rate of at least 8% of their gross earnings, and should be a separate and identifiable component of their pay.
To gain access to sick leave and bereavement leave, at the point the leave is requested, the casual employee must have worked at least an average of 10 hours per week in the 6 months immediately prior, with one hour worked in each week, or 40 hours worked in each month.
Otherwise working days (OWDs)
The Act provides employees with public holiday entitlements if the public holiday falls on a day the employee would otherwise be working. If an employee is full-time or part-time, determining an OWD is usually simple, as their work pattern or roster makes it clear the exact number of days and hours they work each week.
It can be difficult for employers to calculate OWDs for casual employees, or employees whose days of work vary, and the legislation is not completely clear on how this can be done.
If a work pattern is unclear and it is difficult to determine an OWD, the Act requires an employer to consider factors that are relevant to the employee’s situation. These include:
- terms of the employment agreement
- the employee’s work pattern
- whether or not work is readily available
- a pre-defined roster or informal schedule
- the expectation from the employer and employee that the employee would work on the day the public holiday falls
As each employee has different work patterns, rosters and employment agreements, employers must work closely in good faith with the employee to reach a fair agreement.
Penalties
While the Act defines its purpose clearly and specifically, the complexity around its application has made it difficult for employers to meet requirements. There have been many cases of companies and organisations facing financial penalties due to compliance failures. Thousands of companies and government agencies have paid hundreds of millions over the past decade to remediate breaches of the Holidays Act. McDonald's New Zealand was one of those companies who have miscalculated holiday to its employees for nearly 11 years.
The penalties for individual cases of non-compliance can be fines up to NZ$10,000 for an employer who is an individual, and NZ$20,000 for a company or other corporate body.
Need for reform
Lack of compliance from thousands of businesses is not an individual issue but points to systemic challenges within the Act. Since 2003, the workforce has evolved and the application of the Act needs to be adapted to this workforce.
Workers, employers and payroll providers have raised concerns repeatedly with the Government. In December 2024, officials were directed by the Minister for Workplace Relations and Safety to take a new approach to reforming the Holidays Act. The new approach aims at simplicity, improving workability, and reducing compliance costs. It will implement an hours-based accrual model for annual leave and consider whether other models may be better suited for more complex work arrangements.
Until any changes to the Holidays Act go through the Parliamentary process and come into force, all of the existing rules still apply. This means that employers and business owners still need to comply with the current Holidays Act, and ensure they are providing the correct entitlements and payments to employees.
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This article is for general information purposes only and does not constitute as business or legal advice and should not be relied upon as such. It does not take into consideration your specific business, industry or circumstances. You should seek legal or other professional advice regarding matters as they relate to you or your business. To the maximum extent permitted by law, Peninsula Group disclaim all liability for any errors or omissions contained in this information or any failure to update or correct this information. It is your responsibility to assess and verify the accuracy, completeness, and reliability of the information in this article.