Part-time workers will get less sick leave under sweeping changes to the Holidays Act the minister says will be fairer.
Workplace Relations Minister Brooke van Velden says the revamp, which - as signalled last June - will see both annual and sick leave accumulate based on hours worked, is a win for workers, businesses and the country.
She argues the sick-leave changes for part-time workers is more proportionate and will, in the long run, increase part-time jobs in the economy.
Those receiving ACC payments will also no longer gain leave while not at work, in a change the minister says is fairer for employers.
However, other changes are expected to see gains for parents and increased pay for casual workers.
"At the heart of all of this is simplicity, so that everybody knows what they are supposed to be paying and what they're supposed to be earning," van Velden told RNZ. "We have attempted to keep equivalence to the status quo."
The complexity of the current Holidays Act has long plagued employers and led to widespread non-compliance, prompting billions of dollars in repayments, including from the government.
Van Velden hopes to introduce a new simplified scheme for compensating workers, without the complicated calculations currently required.
The changes will be progressed through a new Employment Leave Bill, which would replace the current Holidays Act, expected to pass before next year's election.
All sectors would move to this new system two years after the law is passed, with the exception of schools - which will remain on the current system for 5-10 years, because of the need to replace schools' payroll systems.
Workplace Relations Minister Brooke van Velden. Photo: Marika Khabazi
Wins for new parents and casuals, losses for part-time and injured workers
Workers receiving weekly compensation from ACC would no longer have leave accrue, a change expected to mean savings for small businesses.
"It can be that people are on extended medical leave for quite a long time and it's very unclear when they would be returning to work," van Velden said. "At the same time, that employer is accruing a significant portion of annual leave.
"That person may be away from work out of circumstances that are not in their control and it's very horrible for people, [but] that employer is still accruing a leave liability that becomes quite expensive.
"At the heart of the system is the concept that leave is earned for the hours that you work - it makes for a very clear, straightforward system."
Van Velden said the changes to sick leave for part-time workers was more proportionate.
"If you work one day a week, you might need five days off, but you're only working one day anyway, so you only need that one day from your employer. We believe that this is proportionate, and fair for both the business and the employee."
Businesses wanted the change, she said.
"They believe it's fairer and I've also had some correspondence from people saying the move to 10 days sick leave for part-time employees was very difficult for them to stomach.
"It's just too much of a leave liability, so I do believe that this proportionate change will mean that there are more part-time job opportunities available from businesses, who couldn't previously stomach that additional leave balance."
Some workers would benefit in other ways. Family violence leave and bereavement leave would be immediately available from the start date, and would continue to be allotted in days.
New parents would also benefit, with the new system ensuring those on parental leave continue to gain annual leave at the full rate, and their full pay would resume as soon as they return to work.
Current rules imposing an "override" - which means workers taking annual leave in the year after they've taken parental leave are often paid less than usual - will no longer apply.
"They will be a large winner out of this government's change and no longer going backwards, when they want to take annual leave, after returning from parental leave," the minister said.
Casual employees would be paid 12.5 percent of their hourly wage, instead of getting leave - an increase on the current eight percent rate under the 'Pay As You Go' scheme and eliminating some rules that enable some casual workers to get leave.
The same 12.5 percent payment would also apply to additional hours worked, like overtime under some contracts.
"This is a huge benefit to casual workers, who don't have clear set hours or fixed times of work with their employer, so that they are able to put away money for sick leave or annual leave."
Workers working on public holidays would get paid time-and-a-half for the hours they work, plus one hour of leave entitlement for every hour worked or on call - a shift from the current system, which provides a full day of leave, regardless of the amount of time worked.
A new test would also apply to determine if an employee would otherwise have been working on a public holiday, where they either would have worked that day based on agreed days of work or work patterns, or - failing that - if the employee has worked the corresponding day on at least seven of the past 13 weeks.
Leave and leave pay would also no longer be reflected in things like penal rates, commission payments and event-based allowances.
"Fixed allowances, which are things that are part of the contract will be in, things that aren't part of that contract would be out, so it's very easy for everybody to know what is part of their entitlements, when they go on leave."
Pay statements clearly itemising pay and leave components would become mandatory for employers and there would be a new requirement for contracts to set out a notional roster, if the contract doesn't already specify the information needed to determine leave entitlements, like number of hours.
The length of time employers have to give notice of an annual closedown period will also increase from two weeks to three.
Workers could request a quarter of their current leave balance paid out to them in a year. Currently, it is limited to one week of leave per year, unless the worker is eligible for more than the minimum four weeks a year.
The change would allow for a bit more flexibility.
It should be noted the requirements listed above are all minimums required under the law, with other benefits able to be negotiated for individual or collective contracts.
Aiming for simpler and more efficient
The hours-based accrual is a shift away from the current system, where employers must calculate whether an employee would earn more in an ordinary week or an average over 12 months, which can be difficult, if they work variable hours, or get paid a commission or bonus.
Different types of leave are also sometimes treated differently.
The system is complex and has hampered employers for years - including the government - with hundreds of millions of dollars having to be paid out to workers to compensate for underpayment.
For example, Health NZ has paid more than $300 million in remediation payments to nearly 42,000 workers and total liability across the health sector is expected to top $2 billion.
In December, van Velden confirmed she was going back to the drawing board for a solution to the Holidays Act problem, after feedback suggested her first proposed solution could make things worse.
Submitters argued the approach could be further simplified, with some saying it would be more complex with higher compliance costs than the current system.
Van Velden then asked officials to begin work towards the hours-based accrual system cabinet has now agreed to.
She now plans to also bring in a new system for calculating the underpayments, due to "the high cost of calculating what is owed, given the complex, dynamic calculations needed".
The compensation system is yet to be designed and van Velden said planning was still in the early stages.
Last year, she set solving the Holidays Act problems as one of her top priorities, following on from Labour's attempt to tackle it.
In 2018, Labour had assembled a taskforce to tackle the problem, but failed to introduce legislation to fix the mess, before losing the 2023 election.
Van Velden said she had done "targeted" consultation on the changes proposed by Labour, with a cabinet paper showing some "changes and additions to the previous government's decisions to simplify the design and reduce implementation costs".
Reaction to changes
The New Zealand Council of Trade Union welcomed changes to the Holidays Act that it said would provide sick, bereavement and family violence leave from day one of employment, remove the unfairness for those returning from parental leave, increase casual loading, and provide for pay statements.
NZCTU President Richard Wagstaff said it had long advocated for improvements to the Act.
"We remain deeply concerned about the earnings that have been denied working people due to misapplication of the current Act.
"While we were successful in getting remedial settlements for many workers, such as health employees at Te Whatu Ora, many people have still missed out," he said.
However, the CTU acknowledged some workers would lose out including by removing commission and bonuses from holiday pay, reducing sick leave for part-timers, and removing leave accruing for workers on ACC.
"When this review commenced under the last government, businesses and unions agreed that the Holidays Act should be simplified but that reforms should not result in a reduction in worker leave entitlements," Wagstaff said.
"The proposed changes do not fully honour that understanding - they will reduce sick leave entitlements for part-time workers (and holiday pay for those on commission).
"The impacts will disproportionately fall on Māori, Pasifika, women and other vulnerable workers, who are more likely to be in part-time and insecure work.
"It is good that the Act will be simplified but that didn't need to come at the expense of the hard-won entitlements of working people."
The Employers and Manufacturers Association (EMA) welcomed the changes saying they were a long-overdue fix to a system that had caused confusion and cost for both employers and employees.
The association's head of advocacy, Alan McDonald, said overall it looked much simpler and easier to understand and it would bring much-needed clarity and simplicity to leave entitlements.
He said the system would be largely cost-neutral for employers, with slightly increased pay rates for casual workers offset by reduced sick leave for part-timers.
"The current system has led to many millions in remediation payments across both the public and private sectors. This reform will help prevent those liabilities in future," McDonald said.
"It's also fairer. Under the current rules, someone working one shift a week could receive the same sick leave entitlement as someone working full-time. That imbalance needed to be addressed."
The EMA also said the 24-month implementation period was pragmatic, allowing businesses and payroll providers time to rewrite software, adjust systems and manage the transition.
"There's still work to be done on the transition arrangements, particularly for employees with existing leave balances, but this is a strong start," McDonald said.
"We commend the Minister and her team for tackling a long-standing issue and delivering a solution that's clear and workable."
Additional details
Piece rates - where workers are paid based on tasks completed, rather than hours worked, like being paid a fixed amount per bucket of fruit picked - would no longer be workable under the proposed system.
Van Velden said a model had been developed to estimate a viable hours-based alternative.
"The specifics of that calculation I'd have to get back to you on - it's very niche, but ultimately we want this to work across the system.
"We'd be very interested to hear the specific industry feedback on that particular part."
A cabinet paper shows the 12.5 percent figure for compensating casual workers reflects the current eight percent pay-as-you-go figure for annual leave, plus 3.85 percent for sick leave and a little extra to recognise other factors, like the relative insecurity of casual work arrangements.
The minister recommended not setting the compensation too low, as this could incentivise employers to offer more casual work, instead of hiring permanent employees.
Van Velden expected the overall suite changes would not affect the overall balance of remuneration much in the long term, arguing employers and employees would "seek to reach equilibrium" through collective bargaining.
The transitional cost of the changes to employers - like changing payroll systems - would be balanced out by the reduction in compliance costs through the simpler system and in any case "it is not possible to estimate those costs at an economy-wide level," the cabinet paper stated.
It raised concerns, however, over beneficiaries choosing to receive leave compensation, but working fewer hours, to avoid having their benefit reduced.
"I do not agree that the changes are material enough to impact incentives to work and would, nonetheless, expect the government's expectations of work requirements for job-seeking beneficiaries to continue regardless of incentives," the minister wrote.
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