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Dramatic Changes to the Holidays Act 2003

The Holidays Act 2003 will shortly undergo some of the biggest changes since it came into force on 1 April 2004.

The Government established a Holidays Act Taskforce to review the Act and suggest improvements to address what was seen as a complicated and ambiguous Act. There were concerns that there was widespread non-compliance particularly around the payment of leave, primarily because of issues with the way the legislation was interpreted by payroll systems. This was particularly problematic for employees who did not work a 5 day / 40 hours a week pattern.

Twenty two recommendations came out of the review and these have been accepted by Government and are expected to have introduced legislation by early 2022, which will then be subject to the full parliamentary process.

MBIE Labour Inspectors will still continue their audits and investigations and will require employers to remediate historical underpayments and breaches.


So, what does this mean?

Family Violence, Bereavement, Alternative, Public and Sick Leave (FBAPS) entitlement and calculation for payment

  • Employees will now be eligible for bereavement leave and family violence leave from the first day of employment.
  • Employees will accrue sick leave from the first day of employment with 1 day of sick leave entitlement available from the 1st day and accrue an additional 1 day per month until the entitlement is met (N.B. The Select Committee is currently considering extending sick leave from 5 to 10 days per annum).
  • Bereavement Leave will be expanded to provided an employee with access to 3 days leave for more family members than currently provided for in the Act.
  • FBAPS will be paid at the greater of Ordinary Leave Pay or Average Daily Pay over the last 13 weeks.
  • The deduction fo sick leave and family violence leave can be in units of less than a day with a minimum of a 1/4 of a day.
  • Where a public holiday is transferred, this will automatically be treated as an Otherwise Working Day for an employee regardless of their work pattern.

Annual Leave entitlements and calculation for payment

  • Employers will have 3 different calculations to consider before paying an employee for annual holidays taken.
    • The employer must pay the greater of:
      • Ordinary Leave Pay (which is what the employee would have been paid had they have worked on the day)
      • Average Weekly Earnings over the last 13 weeks
      • Average Weekly Earnings over the last 52 weeks
  • The Calculation of annual holiday pay payments will change for employees returning after a period of parental leave. This means the override of the Parental Leave and Employment Protection Act 1987 will be removed and employees will be paid their holiday pay in accordance with the Holiday Act, at their full rate, for all their annual holidays accrued during parental leave.
  • Annual leave will be calculated, taken, paid, maintained and recorded in weeks or part weeks.
    • There is clarification for an employer to determine what a week is for an employee, where it is not clear. For example, the employment agreement or roster can be used to determine how many hours in a week, and where that is not clear, average hours can be calculated by averaging the hours worked over corresponding days over the previous 13 weeks.
    • An employee can take their annual leave as it accrues in advance of the entitlement.

Casual and Fixed Term Employees

  • Employers will no longer be able to pay fixed term employees (of less than 12 months), their holiday pay in each pay period (Pay As You Go or PAYG).
  • For other employees (employees on a casual employment agreement or a fixed term agreement for more than 12 months) the employer is required to review these employees every 13 weeks to check their eligibility to PAYG.

Other Changes

  • As well as changes regarding maintaining records and payment for leave, there are other changes that employers will need to understand and implement. These are:
    • Payslips: Employers will are required to provide payslips to employees for every pay period and the payslips must show annual leave taken and current entitlement for leave and how this is calculated.
    • Availability Provisions and Leave: Employers will not be able to require employees to attend work while on a period of leave (any kind of leave) even if there is an availability provision in the employment agreement. Basically the availability provision would be suspended for the period of leave but the employee could still agree to work if they wished to do so.
    • Otherwise Working Day: An Otherwise Working Day is a day that the employee was expected to work according to their work pattern or as agreed between the employee and employer OR the employee has worked on 50% or more of the corresponding days in either the previous 4 weeks or the previous 13 weeks.
    • Closedown Periods: There are six changes to Closedown Periods:
      • Advise any prospective employee, before they sign their employment agreement, that the company has a customary closedown;
      • Providing reasonable notice to employees;
      • Reset of anniversary dates removed (but can happen by agreement);
      • Ability for employees to be able to take holidays in advance beyond accrued entitlement in the event of a closedown;
      • Minimum notice of 14 days for agreed additional closedowns;
      • When additional closedowns will occur, must be in writing.
  • Sale and Transfer of Business: In the event of the sale and transfer of a business, an employee should be able to have a choice about whether to transfer all their leave entitlement or have thel leave paid out and reset.


What Three60 Consult will do to assist you

My colleague Tasneem Begum and I have worked as senior labour inspectors with MBIE and understand that these are dramatic changes and they can seem daunting. There is a long lead in time with these changes not being introduced to Parliament until early 2022.

We will support our clients through these changes and provide you with the information you need to ensure you are ready and that your systems are ready.

Our first step is to host free webinar that discusses these changes and what they mean for your business.

We will continue to offer our Minimum Entitlements Review service to provide employers with the confidence that the processes they are following to maintain records, calculate and pay leave and provide their employees will their minimum statutory entitlements, is complaint and that they are ready to move into these new changes with no historical risks.


Written by Lynn Booker, Senior Associate at Three60 Consult.


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.

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