19 February 2013 | Three60 Consult

Posted on: Feb 19, 2013

Question: Is it legal for an employee under a individual employment agreement to work variable hours per week?

For example, in the retail sector, an employee may work for 30 hours one week, 50 hours in the following week, 20 hours in the third week, 60 hours in the fourth week and so on. Although the hours worked will vary from week to week, the employer will ensure that the employee ends up working only 40 hours per week on average through the year. The agreed annual salary is $40,000.

Answer: It is possible to enter into the arrangement described above. The employee is a permanent employee with variable hours of work. Issues that might arise from this arrangement such as hours of work, health & safety, rest & meal breaks, and the calculation of annual holidays, sick leave and alternative holidays are noted in this article.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

Posted on: Feb 19, 2013

When an employee works variable hours, there are many implications an employer needs to take into consideration. Some of the most common implications are summarised in the article below.

Hours of work

There is no legislation directly governing how many hours an employee may work per week. The Minimum Wage Act 1983 (section 11B) requires that every employment agreement fix at no more than 40 the maximum number of hours (excluding overtime) to be worked in any week by a worker bound by the agreement but parties can agree that longer hours will be worked. It provides that, if the agreed hours are 40 or less, the parties must endeavour to fit those hours into five or fewer days of the week. The requirement to fit the hours into five or fewer days is not mandatory. Accordingly, the days of work and hours of work are a matter of contract.

Health and safety

The employer must ensure that the employee does not become overtired in the 60-hour weeks and become a “hazard”. Under the Health and Safety in Employment Act 1992, employers have a general duty to take “all practicable steps” to ensure the safety of employees at work and, in particular (section 6), to:

provide and maintain a safe working environment
provide and maintain facilities for the safety and health of employees at work
ensure that machinery and equipment in the place of work is designed, made, set up and maintained to be safe for employees
ensure that employees are not exposed to hazards in the course of their work, and
develop procedures for dealing with emergencies that may arise while employees are at work.

A “hazard” includes a situation where a person’s behaviour may be a source of harm. A person’s behaviour may be a “hazard” in terms of the Act as a result of physical or mental fatigue, drugs, alcohol or traumatic shock.

Rest and meal breaks

The employment agreement should make provision for rest and meal breaks. Employers must provide rest and meal breaks in accordance with the provisions in Part 6D of the Employment Relations Act 2000. These are minima, and nothing prevents parties from agreeing to “enhanced or additional” entitlements. The entitlements are calculated on the basis of an employee’s work period (including all authorised breaks, paid and unpaid) as agreed in his or her terms and conditions of employment.

Employees are entitled to paid rest breaks and unpaid meal breaks as follows:

If an employee’s work period is two hours or more but no more than four hours, the employee is entitled to one 10-minute paid rest break.
If the work period is more than four hours but no more than six hours, the employee is entitled to one 10-minute paid rest break and one 30-minute meal break.
If the work period is more than six hours but no more than eight hours, the employee is entitled to two 10-minute rest breaks and one 30-minute meal break.
If the work period exceeds eight hours, the employee is entitled to the breaks someone working more than six hours and up to eight hours would be entitled to, plus such breaks as he or she would be entitled to if the work period is assumed to have commenced at the end of the eighth hour. Thus, an employee would have to work 10 hours before being entitled to a third break, because at the end of the eighth hour he or she would be considered to have commenced a work period of two hours, for which a 10-minute break is prescribed.

Employers are required, so far as reasonable and practicable, to provide rest and meal breaks at times evenly spaced through the work period.

Holidays and leave

The employer and employee should agree in the employment agreement how the employee’s pay for the purposes of sick leave, bereavement leave, public holidays and annual leave will be determined.

Relevant daily pay

Relevant daily pay is the normal measure used in the calculation of payment for public holidays, alternative holidays, sick leave and bereavement leave. However, depending on the circumstances, the calculation of pay for those days may be made on the basis of the employee’s average daily pay.

Under the Holidays Act 2003 (the Act), an employer may use an employee’s average daily pay for the purposes of the calculation if it is not possible or practicable to determine an employee’s relevant daily pay, or the employee’s daily pay varies within the pay period when the holiday or leave falls (s 9A(1)(a) and (b)).

Section 9 of the Holidays Act provides guidance on the calculation of relevant daily pay.

When calculating relevant daily pay, the focus is on the particular day concerned and the remuneration the employee would have received if he or she had worked. The relevant daily pay must include any productivity or incentive-based payments, commission or overtime payments if they would have otherwise been received had the employee worked on the day in question.

The cash value of any board or lodgings provided by the employer must also be included in the relevant daily pay rate (s 10). Any contribution by the employer to a superannuation scheme for the benefit of the employee is to be excluded from the calculation of relevant daily pay.

An employment agreement may specify a special rate of relevant daily pay if the rate is equal to, or greater than, the rate that would otherwise be calculated under s 9(1) (s 9(2)).

Average daily pay

The average daily pay rate may only be used when it is not possible or practicable to determine an employee’s relevant daily pay or when the employee’s daily pay varies within the pay period when the holiday or leave falls (s 9A).

To calculate average daily pay, the employee’s gross earnings (s 14) for the 52 calendar weeks before the end of the pay period immediately before the calculation is made are divided by the number of whole or part days during which the employee earned the gross earnings. The divisor days include any day on which the employee was on a paid holiday or paid leave but do not include any other day on which the employee did not work. If the employee has worked on a public holiday, the employee’s gross earnings do not include the extra payment for working on a public holiday that is provided under s 50(1)(a).

Comment

The employer must consider whether it will be practicable to determine the relevant daily pay rate in this situation. If the roster is set well in advance, it will be possible to determine the employee’s relevant daily pay rate and that rate must be paid. In that situation, if the employee takes sick leave on a day on which he or she was rostered to work 10 hours a day, the employee must be paid 10 hours’ sick leave. If a public holiday falls on a day on which the employee would have been rostered to work, he or she must be paid for 10 hours. If the roster is not set in advance, it will not be practicable to determine a relevant daily pay rate and the average daily pay rate can be used.

The employer may not use the roster as a means of avoiding paying the employee for public holidays. Any employment agreement that excludes, restricts or reduces an employee’s entitlements has no effect to the extent that it does so (s 6).

Ordinary working day

One of the prerequisites to an employee receiving payment for a day off work on a public holiday, an alternative day, a sick day or a day of bereavement is that the day must otherwise have been a working day for the individual. The parties should agree on how they will determine an “ordinary working day”.

Section 12 of the Act provides guidance on how to determine what would otherwise have been a working day. Subsection (3) lists factors that are to be taken into account in assessing whether a day would otherwise be a working day for the employee. The factors are:

the terms of the employment agreement
the employee’s work patterns
whether the employee works only when work is available
the employer’s rosters or other similar systems
the reasonable expectations of the parties that the employee would work on the day concerned, and
whether, if the day had not been a public holiday, alternative holiday, or day of sick or bereavement leave, the employee would have worked on the day in question.

Ultimately, the issue of whether a day would otherwise have been a working day will rest on the particular facts of each situation. While it is helpful to have specific factors listed in s 12(3), the factors are necessarily general and subjective. The wording in the employment agreement will be of major importance.

Annual leave

The general concept regarding payment for annual holidays is set out in s 21(2) of the Act and is that the employee must receive the greater of:

his or her current ordinary weekly pay rate, or
the rate of his or her average weekly earnings over the previous 12 months for the period of the holiday.

The employer must calculate each of these rates whenever annual holidays are taken, and then pay the higher amount.

Ordinary weekly pay

Section 8 of the Act explains how to calculate an employee’s ordinary weekly pay. Ordinary weekly pay is used in the calculation of annual holiday pay. It is compared with an employee’s average weekly earnings and the higher rate is used in the calculation of annual holiday pay. It includes:

productivity or incentive-based payments (including commission) if those payments are paid regularly
payments for overtime if those payments are paid regularly, and
the cash value of any board or lodgings provided by the employer to the employee.

It excludes:

productivity or incentive-based payments that are not paid regularly
payments for overtime that are not paid regularly
any one-off or exceptional payments
any discretionary payments that the employer is not bound by the employment agreement to pay, and
employer contributions made to a superannuation scheme for the benefit of the employee.

Formula

Section 8(2) sets out a formula to be used when “it is not possible to determine an employee’s ordinary weekly pay”. This formula will be used when an employee’s normal pay varies from week to week. The formula takes the gross earnings for the previous four calendar weeks and subtracts irregular, one-off or exceptional payments. That figure is then divided by four to get a weekly sum. In other words, it takes the average over the previous four weeks of the employee’s normal remuneration.