Earlier this month, the Employment Leave Bill (Bill) was introduced into Parliament, signifying an important development in fixing current issues with the Holidays Act 2003 (Holidays Act). This Bill, if passed into legislation, will repeal and replace the Holidays Act.
A new framework
The Bill aims to establish a new framework for leave that is simple and provides greater certainty for employers and employees about their entitlements, and their obligations.
The Holidays Act has been notoriously difficult to interpret with its complex and unclear provisions, especially in regard to diverse working arrangements. This has led to widespread compliance issues, and high administrative burdens for employers.
Our view is that this is going to be a vastly better system than the previous Holidays Act for both employers and employees.
Key changes
Leave will accrue in hours instead of days/weeks
The Bill fundamentally changes the way that leave is accrued, with a focus on different types of working hours.
The Bill defines the following categories of hours:
- Standard hours: hours an employee is required to work under their employment agreement and for which the employer must pay them.
- Additional hours: hours worked above standard hours, where the employee is entitled to additional payment for those hours.
- Casual hours: hours worked where there is no obligation on the employer to offer work or on the employee to accept it.
Annual leave will accrue at a minimum rate of 0.00769 per standard hour from the employee’s first day of employment. It will accrue during all types of leave except for unpaid leave, or when the employee is being paid by the Accident Compensation Corporation.
Annual leave will be taken in hours, instead of days. This will improve the flexibility in which employees can take leave, especially those with diverse working arrangements.
Sick leave becomes pro-rated
Sick leave will accrue at a rate of 0.0385 hours per standard hour from the first day of employment, up to a cap of 160 hours. Sick leave will not accrue for hours that are taken as unpaid leave, or when the employee is being paid by the Accident Compensation Corporation.
Bereavement leave and family violence leave will remain day-based entitlements but arise from the first day of employment, instead of six months after employment commences. Employees will be able to take part-days of these entitlements.
New otherwise working day test (OWD)
A new otherwise working day (OWD) test applies to public holidays for employees who do not have a pattern of work specified in their employment agreement.
Under this test, a day is treated as an OWD if the employee has worked (or was on paid or unpaid leave) for 50% or more of the same day of the week as the public holiday in the preceding 13 weeks.
Casual employees and additional hours: Leave Compensation Payment (LCP)
Under the Bill, casual employees will no longer receive 8% equivalent of their annual holiday pay on a “pay as you go” basis. Instead, casual employees will receive a 12.5% leave compensation payment (LCP) based on their ordinary hourly rate which will cover both annual leave and sick leave equivalents.
Additionally, waged employees will receive a 12.5% LCP on any hours worked over and above their minimum guaranteed hours. Salaried employees will only receive the LCP for additional hours if they are separately paid for those hours.
Like “Pay as you go” payments, the leave compensation payment will be a separate component of pay and must be shown separately in employee’s records and pay statements.
Cashing up of annual leave
The Bill also increases the amount of annual leave that an employee will be able to cash up. Employees will be able to cash up to 25% of their total annual leave balance, per 12 month period, instead of being limited to up to one week per year.
How do these changes simplify things?
The changes mean that the same hourly leave rate will be used in calculating entitlements, rather than having to perform multiple different calculations to determine the pay rate, it is a single payment calculation for all types of leave.
This will promote consistency across different leave types and improve clarity for both employees and employers.
Next steps
The Bill is currently before Parliament for its first reading, and submissions on the Bill will soon be open. After a Select Committee has considered submissions and made any suggested amendments, the Bill will move to a second reading in Parliament, before it is further considered by the Committee of the Whole House. If the Bill passes through its third reading, it will then receive Royal Assent and become law.
The Bill will come into force two years after Royal Assent, allowing for an implementation period where systems and employment agreements can be updated.
The Bill sets out provisions detailing the implementation process which will give employers, payroll providers, and HR teams time to update systems, agreements, and internal processes.
We will be watching with interest to see how the Bill progresses through Parliament – please reach out to our employment law experts if you have any questions.
