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Regulatory Impact Statement - Review of the Holidays Act 2003

Agency disclosure statement

  1. The Department of Labour prepared this Regulatory Impact Statement. The Regulatory Impact Statement provides an analysis of options to revise the Holidays Act 2003. The analysis is provided at two levels. The first level is as a response to the broader policy problem of perceived failings of the Act (this is the RIS itself). The second level of analysis is as a response to particular issues raised by a Ministerial Advisory Group and the Department of Labour in administering the legislation (the appendix provides this second level of analysis).
  2. The objectives of the review, and the proposed legislative changes, are to:
    1. make the Act easier for businesses and employees to understand and apply
    2. reduce direct and compliance costs, and
    3. make the Act more readily applicable to a range of employment patterns.
  3. The review aims to make changes without decreasing the current core holidays and leave entitlements or returning to the ordinary pay calculation used under the Holidays Act 1981.
  4. The analysis of the policy options under consideration is constrained by the limited availability of objective evidence of problems with the current holidays legislation, both on the type and the extent of any problems. There is a lack of robust data available to quantify the potential impacts of the policy options considered.
  5. The Department of Labour considers that there will be no increased direct costs for employers if employees are able to cash up annual holidays. This is because the additional payment is offset by the additional work undertaken by the employee. This assumes that productivity is the same during the additional time worked as at other times and that productivity is not adversely affected if employees take less time off work. If an employer is concerned that cashing up annual holidays may negatively impact on an employee's health (thereby reducing productivity) then they are able to decline a request. The Department is unable to determine what impact there will be on productivity overall as it depends on individual circumstances. It is possible that in some circumstances productivity may be increased, for instance if cashing up reduces the use of less experienced staff to replace employees who are on holidays.
  6. There are two levels of compliance costs to employers with the option to cash up annual holiday entitlements. The first is the cost of considering an employee's request to cash up. However, these costs are very minor as an employer can refuse to cash up for any reason, without giving reasons, and can also have a policy to not cash up annual holidays. The second is the cost in relation to the mechanism and process of cashing up annual holidays. While these are slightly higher than the cost of simply considering a request, the fact that an employer can refuse a request for any reason ensures that they will not have to accept the cash up request if they consider that the associated compliance costs will be too high.
  7. The Department of Labour's 2009 research on the Holidays Act involved interviews with employers, payroll administrators and employees from ten independent, private sector businesses. The participants were self-selected. It can be assumed that employers who were knowingly not complying with the Act would be unlikely to agree to participate. The researchers were unable to locate any firms (which met the size and sector criteria) in which employees were paid commission or productivity bonuses. This omits a sector of businesses that has expressed dissatisfaction with the relevant daily pay mechanism.
  8. The Regulatory Impact Statement includes an estimate of the wage bill if Easter Sunday was made a 12th public holiday. This is based on information from the Time Use Survey 1999, Quarterly Employment Survey (QES) December 2009 and Linked Employer-Employee Data (LEED). There is no similar data to that used from the Time Use Survey that is more recent than 1999. It is possible that working patterns have changed since this time. There is no reliable information on the extent that penal rates apply to working on a Sunday (or Easter Sunday). Making Easter Sunday a pubic holiday is not a policy that is progressed in the Holidays Amendment Bill.
  9. The policy options under consideration are expected to impact on compliance costs for businesses. Some options are likely to have a greater impact than others and some types of businesses, e.g. small and medium-sized enterprises, are more likely to be affected.

Paul Barker
Group Manager - Workplace Policy (Acting)
for Secretary of Labour

This regulatory impact statement was finalised on 4 June 2010 and was considered by Cabinet on 28 June 2010

Status quo and problem definition

Overview

  1. The objective of providing minimum holiday and leave entitlements is to ensure that all employees have access to entitlements at a standard that society as a whole considers acceptable.
  2. The Holidays Act 2003 sought to address criticisms that the 1981 Act was complicated, difficult to understand and apply and did not reflect changes in working patterns that had occurred in the intervening years.
  3. The Government's 2008 pre-election commitments included allowing employees to cash up the fourth week of annual holidays and establishing a working party to review the Holidays Act, especially the issue of relevant daily pay.
  4. A review of the Holidays Act was included in the Government's 2009 and 2010 Regulatory Reform Agenda. The review aims to address concerns that the current legislation is unnecessarily complex and does not reflect modern working arrangements.

Current settings

  1. The Holidays Act 2003 seeks to promote balance between work and other aspects of employees' lives. It provides minimum entitlements to:
    • four weeks of annual holidays for rest and recreation
    • paid public holidays for the observance of days of national, religious or cultural significance
    • five days of sick leave per year (after six months' continuous employment) to assist employees who are unable to work because they are sick or injured or someone they care for is sick or injured, and
    • bereavement leave[1] to assist employees who have suffered a bereavement.
  2. The legislation also sets out payments for holidays and leave. Annual holidays are paid at the greater of average weekly earnings[2] or ordinary weekly pay[3]. If an employee works on a public holiday they are entitled to payment of time and a half for the hours worked and an alternative holiday, if the public holiday was an otherwise working day for them. Sick and bereavement leave and public and alternative holidays are paid at the employee's relevant daily pay[4].

Ministerial Advisory Group

  1. A Ministerial Advisory Group, representing both employers and unions and with an independent Chair[5], was established in June 2009 as part of the Government's review of the Holidays Act [CAB Min (09) 7/4 refers].
  2. The Group's terms of reference identified seven areas of interest, based on consultation by the Department of Labour. The terms of reference signalled that radical changes to the legislation were not being sought.
  3. The Group received 241 written public submissions. They heard oral submissions from the Small Business Advisory Group, Labour Inspectors, Mediation Services, New Zealand Payroll Providers' Association and the Chief Judge of the Employment Court. The Group carefully considered the issues and proposed options raised by submitters. They also considered the legislative settings in other countries (such as Australia, Canada and the United Kingdom), research undertaken by the Department of Labour and the findings of previous reviews of the Holidays Act.
  4. In December 2009, the Group made recommendations to the Minister of Labour on ways to improve the operation of the Holidays Act. A copy of their report is available on the Department's website: http://dol.govt.nz/publications/research/ holidays-act-review-2009/index.asp.
  5. The Group reached agreement on three areas: making no changes to the treatment of public holidays or the entitlements of casual employees and allowing the transfer of public holidays within set criteria. The Group did not reach agreement on the other areas reviewed: the status of Easter Sunday; the accumulation of alternative holidays; allowing the cashing up of annual holidays; and relevant daily pay.

Problem definition

  1. At the broadest level of analysis, the three main problem areas identified with the legislation are:
    • some areas of the Act are overly complex for businesses and employees to understand and apply, particularly the calculation of relevant daily pay
    • the Act has reportedly increased compliance and direct costs for businesses, and
    • the Act is not easily applied to all businesses, employment or industry types such as 24 hour a day, 7 day a week businesses.
  2. There is limited data available to assess the type and extent of problems with the holidays legislation. Most of the issues raised are based on anecdotal feedback to the Department of Labour and submissions to the Ministerial Advisory Group. This can lead to bias towards issues where the legislation is not working for some individuals or groups - even though it may be working for others, perhaps even the majority.
  3. Available evidence on the operation of the legislation is:
    • information requests to the Department's contact centre increased when the minimum entitlement to annual holidays changed and have since decreased, but remain well above pre-change levels (37,722 enquiries in 2005/06 to 59,143 in 2007/08 to 50,201 in 2008/09). The number of complaints to the Labour Inspectorate have fluctuated over the same period (2,204 in 2005/06, 1,831 in 2006/07, 2,049 in 2007/08 and 2,563 in 2008/09)
    • the October 2008 Business New Zealand-KPMG compliance cost survey identified applying the Holidays Act to be one of the top five compliance costs facing New Zealand businesses[6]
    • during the 2006/07 Quality Regulation Review the Act was criticised for its perceived complexity and generic approach. Issues relating to minimum entitlements were raised by the four sectors surveyed: hospitality, horticulture, retail and viticulture. These included concerns that public holiday entitlements are financially adverse to businesses and cannot be recuperated though surcharges, and the impact on businesses of public holiday closures.
    • qualitative research[7] on the overall impact of the Holidays Act on small and medium-sized enterprises indicates that:
      • employers were most familiar with the entitlements related to annual holidays and public holidays
      • many employees did not know their specific entitlements under the Act
      • employers' perceptions tended to be focused on the direct costs of the fourth week of annual holidays and, to a lesser extent, employees' entitlements for working on public holidays
      • employers whose business started after the increase in annual holidays' entitlements (April 2007) were more likely to consider the Act a fact of business life, without a particular impact on their firms that other businesses did not also face[8]. This suggests that some of the impacts (including perceptions) of the Act relate to regulatory change rather than the regulation itself
      • overall the Act was seen as a minor constraint by employers in the survey (because they made their own arrangements), particularly compared to product market and (to a lesser extent currently) labour market constraints, and
      • marginal compliance costs imposed by the Act were considered insignificant by employers in the study[9].
  4. The key groups that are most likely to experience difficulties with the current Act are:
    • small businesses as they generally have fewer human resource and payroll resources and expertise and they deal with some parts of the Act less frequently than larger businesses
    • sectors that work variable hours, days or shifts, such as manufacturing, some hospitality and retail businesses and seasonal industries (horticulture and agriculture)
    • sectors that have variable rates of pay (such as piece rates and commission-based pay) like the retail sector and the meat processing industry
    • employees who are already disadvantaged in the labour market or who have poor ability to advocate for their rights. In particular this will include some low skilled workers, Māori, Pacific people and young workers, and
    • employees in "casual" employment situations.

Impacts of changes to the Holidays Act

  1. Changes to the Holidays Act will directly affect all employers and employees to differing degrees, depending on the issue under consideration. More detailed consideration of the impacts of the options considered is outlined in the assessment of the options in Appendix one.

Objectives

  1. The objectives of the review of the Holidays Act 2003 are to:
    1. make the Act easier for businesses and employees to understand and apply
    2. reduce direct and compliance costs, and
    3. make the Act more readily applicable to a range of employment patterns.
  2. The review aims to make changes without decreasing the current core holidays and leave entitlements or returning to the ordinary pay calculation used under the Holidays Act 1981.
  3. The objectives are not weighted. For some of the options considered, one objective is met at the expense of the other objectives being fully realised.

Options

  1. Options were considered for each of the seven areas identified for the review:
    1. cashing up annual holidays
    2. relevant daily pay
    3. transferring public holidays
    4. casual employees
    5. the accumulation of alternative holidays
    6. the treatment of public holidays, and
    7. the status of Easter Sunday.
  2. The options outlined in the Regulatory Impact Statement and Appendix One are primarily based on the options considered by the Ministerial Advisory Group. Additional options have been identified by the Department of Labour, from submissions to the Ministerial Advisory Group, and from the Minister of Labour.

Assessment of the options

  1. Below is the overlying analysis for different combinations of policy options. Appendix one contains detailed analysis of the individual areas in the review; it includes information about the issues, the Group's recommendations and an assessment of the policy options for each of the areas reviewed.
  2. There is a lack of data to fully quantify the potential impacts of the policy options considered in the time available. The Department's assessment is based on what is known to it, which includes anecdotal evidence.
  3. The Minister of Labour has considered three different sets of recommendations based on the areas of interest on which the Group did or did not reach agreement and other policy options. The degree of change that would be achieved by each set of recommendations is shown below.

Option A
Areas of interest on which the Group reached agreement
Low level of change to the Act

Option B
Areas of interest on which the Group did not reach agreement
High level of change to the Act

Option C
Areas of interest on which the Group reached agreement and other policy options considered by the Minister of Labour
Medium level of change to the Act

Status quo

  1. The Department of Labour has also considered the implications of the status quo (not making any changes to the Act). The status quo will not address issues that can be easily fixed or address perceived problems with the Act. Some parts of the Act have been criticised as being unclear, overly complex and lacking choice for both employers and employees. A lack of clarity in holiday provisions has a negative impact on employment relationships and productivity because employers and employees have to spend time and resources trying to establish what their rights and obligations are.
  2. The Department considers that the legislation in part reflects the complexity of modern employment arrangements. While the Department does not consider that major changes are needed, there are some areas where it is desirable to improve the operation of the legislation. There are some areas where the existing legislation may work better if employers and employees were provided with more tailored information and guidance, such as the calculation of relevant daily pay.[12] However, it is unlikely that provision of this information alone will address some of the more commonly held concerns over the legislation.

Option A

  1. Option A contains only the recommendations where the Group reached agreement. This option would go a small way towards meeting the objective of making the Act more readily applicable to a range of employment arrangements. However, as most of the agreed recommendations are to retain the status quo, it will not address the other objectives of making the Act easier for businesses and employees to understand and apply or reduce direct and compliance costs.
  2. Overall, option A would have only a limited effect and does not address concerns with the existing legislation.

Option B

  1. Option B is made up of the recommendations that seek to make the greatest/most active changes to the Act. This option aims to simplify the Act and reduce direct and compliance costs by providing for one rate at which all leave is paid.
  2. The benefits of this option are likely to be outweighed by the costs. The costs include increased compliance costs for all employers, a reduction to sick leave entitlements, a potential reduction to annual holiday entitlements, and a reduction in entitlements for employees on unpaid leave including ACC and parental leave.
  3. Unions consider that workers will be unduly disadvantaged by the more active changes in this option, such as the additional proposed changes to annual holiday pay and the accumulation of entitlements.
  4. Overall, option B is unlikely to reduce compliance costs or complexity. Instead it will significantly increase compliance costs for all employers as they will need to accumulate and deduct holiday and leave entitlements in a different way and substantially renegotiate employment agreements. This option will go some way towards meeting the objective of making the Act more readily applicable to a range of employment arrangements and reducing direct costs, but it will not address the other objectives of making the Act easier for businesses and employees to understand and apply, or reduce compliance costs. It is likely to have a negative impact on disadvantaged or casual workers and may reduce flexibility for some part-time and flexible work arrangements.
  5. Overall, Option B would not sufficiently simplify the Act to justify the implementation changes employers and employees would be required to make or the potential reduction in entitlements and payments for a significant proportion of employees.

Option C

  1. Option C is a mix of recommendations from the Group (as a whole or from the different representatives) and other policy options considered by the Minister of Labour. This option represents the Minister of Labour's preferred combination of options. Option C provides a reasonable balance in meeting employer and employee interests and represents a "middle ground" that also addresses the main areas of concern with the legislation.
  2. Some changes under this option provide greater choice for employees (cashing up annual holidays and transferring public holidays). Other changes may make it easier for employers to understand and comply with the legislation (average daily pay (ADP), the "but for" test and defining some components of gross earnings). The limited ability for employees to cash up annual holidays and transfer public holidays should also limit compliance costs for businesses.
  3. The introduction of ADP is likely to remove any perceived incentives for employees to take leave on high rate days because regardless of whether an employee takes a long or short day's leave they will only receive an averaged payment.
  4. The Department of Labour considers that the option to remove the ability for employees to decide when the alternative holiday is taken will reduce existing entitlements (the default right to nominate the day on which the alternative holiday is taken).
  5. Overall, option C is likely to have minimal impacts on small businesses. It is likely to have some positive impacts on sectors that work variable hours, days or shifts, and sectors that have variable rates of pay. It is likely to increase compliance costs for some employers, such as those with traditional working hours or where pay rates and hours are easily identified. As the Act specifies the minimums for calculating holiday and leave payments, these employers may agree to continue with their current method of calculating payments providing it is equal to or greater than that provided in the Act. Option C would have less of an impact on salaried workers and their employers than option B.
  6. There are risks that the proposed changes will have short-term negative impacts, such as confusion or lack of understanding of the changes, that may undermine the purpose of the proposed changes to the holidays legislation. There are likely to be one-off compliance costs for employers as part of implementing the changes, such as making changes to payroll systems and renegotiating employment agreements.

Consultation

  1. The Ministerial Advisory Group received 241 written public submissions. Submitters included employers (106), employees (22), employer representatives (32), unions (5 submissions representing 42 unions), youth (19), women's groups (4), payroll software suppliers/providers (8), employment lawyers/firms/academics (11), Māori organisations (1), self-employed individuals (2), other individuals (24) and other organisations (7).
  2. The Group also heard oral submissions from Labour Inspectors, Mediation Services, the Small Business Advisory Group, the New Zealand Payroll Practitioners' Association and the Chief Judge of the Employment Court.
  3. A summary of the submissions is included in the Group's report. Some of the main issues raised by submitters on particular topics are included in the appendix.
  4. The Department of Labour consulted with the Treasury, Ministry of Economic Development, Ministry of Pacific Island Affairs, Ministry of Women's Affairs, Te Puni Kōkiri, Ministry of Social Development, Ministry of Health, Ministry of Education, Inland Revenue, Ministry of Justice, State Services Commission and the Department of the Prime Minister and Cabinet on the content of the Cabinet paper.
  5. Treasury and the Ministry of Economic Development (MED) have concerns that the proposed package of changes may not improve the functioning of the legislation. Agencies have had limited time to consider the current proposals and a number of proposals that may impose additional costs on businesses were made late in the review process. The balance of costs and benefits of the package of proposed changes is not clear. At a minimum, amendments are likely to impose transitional costs on both employers and employees and the extent of other potential costs is unclear.
  6. Treasury and MED are particularly concerned that the costs to business associated with the proposal to replace relevant daily with average daily pay for public holidays, alternative holidays, sick leave and bereavement leave may exceed the benefits and therefore not provide an effective solution to the current problems with calculating relevant daily pay for the portion of businesses where employees have complex work arrangements. There is also a risk that this proposal will impose unnecessary costs on the majority of employers for which the current method of calculation is relatively straightforward. Providing an additional option for employers to calculate pay could add to the confusion that some employers already have about which calculation to use. This would increase compliance costs, particularly for small businesses.
  7. It is not clear how viable the proposal that employees be able to cash-up a maximum of one week's annual leave is as the cost of implementing it (particularly if employees apply to cash-up leave incrementally) may be so high that employers choose to have a no cash-up policy. There is also a risk that this proposal could create new employment tensions between employers and employees.

Conclusions and recommendations

  1. The Department of Labour's preferred options for each of the individual areas reviewed by the Ministerial Advisory Group were:
    • retain relevant daily pay as a means to calculate public holidays taken, sick leave, bereavement leave and alternative holidays, but amend the second tier of relevant daily pay (section 9(3)) so that the averaging formula is extended from a four week to a 52 week period. The first tier (section 9(1)) remains in place for salaried workers. Only employees with complex work arrangements would therefore be affected by this option. This option aims to minimise the distorting impacts that can sometimes be caused by averaging over four weeks, represents the lowest reduction in entitlements of the options considered and accommodates some employers for whom relevant daily pay may not be working currently
    • including the "but for" test in legislation to provide an additional tool for employers and employees to identify an otherwise working day
    • making no changes to the accumulation of alternative holidays as the Department considers that this issue only affects a small number of employers and none of the options considered will make a significant improvement to the operation of the legislation in a way that meets the objectives of the review
    • making no changes to the treatment of public holidays as there is not a significant call for change and there is no clear consensus on what changes should be made, and
    • making Easter Sunday a mondayised public holiday as it will provide protections for those employees who do not have Easter Sunday provisions in their employment agreements and it may help with compliance with shop trading restrictions by aligning the Holidays Act with the shop trading legislation.
  2. The Department of Labour has not taken a position on:
    • whether employees should be allowed to cash up some part of their minimum entitlement to annual holidays due to the lack of evidence around the implications of this option. The Department considers that if it does proceed then this option needs to provide a balance between opportunities for rest and recreation, employee choice and fairness for employees and employers
    • whether to allow public holidays to be transferred. In the Department's view the current situation is working well and only a minority of submitters considered that public holidays should be allowed to be transferred. However, including a transfer provision will provide increased choice for those employers and employees who do wish to transfer public holidays, although it will increase the complexity of the legislation
    • making changes to entitlements to alternative holidays. The Department considers that the issue of an employee choosing when an alternative holiday is taken is limited to a few employers (less than 10 submitters to the Group said that employees should not be allowed to choose when alternative holidays are taken)
  3. The Department of Labour did not support the proposed changes that were part of the Standard daily pay (SDP) package[13] as these changes were likely to represent a significant reduction in current entitlements and, in some cases, it was not clear that the proposed options were the most effective way to address the perceived problems.
  4. The impact of the new calculation of Average daily pay (ADP) on employees will vary. This provision will replace Relevant daily pay (RDP) so that instead of a calculation being made on the basis of what an employee would have earned on a specific day of leave, the calculation will be made on averaging an employee's gross earnings over the previous 52 weeks before the leave is taken. Over the course of a year some employees are likely to receive a lower payment than they would under RDP, for instance employees who have had a pay rise in the last 12 months.[14] As on average around half of wage and salary workers may receive a pay rise over a year there could be significant numbers negatively affected to some extent.[15] Other types of employees may receive an increase or a decrease in payments compared with RDP, depending on a number of factors, such as any additional payments received in the previous four weeks. Consequently, it is difficult to accurately estimate how many employees will be advantaged or disadvantaged by ADP. As the Act sets out minimum payments for leave, it is possible that employers may pay their employees a higher amount that is in line with current practice.
  5. ADP is likely to reduce compliance costs in sectors with complex work arrangements (payment by commission or productivity or variable hours of work). It is likely to increase compliance costs for some employers such as those with traditional working hours or where pay rates and hours are easily identifiable as they would have to undertake calculations which they currently do not have to do, as RDP is identifiable.[16] As the Act specifies the minimums for calculating holiday and leave payments, these employers may continue with their current method of calculating payments providing it is equal to or greater than that provided in the Act.
  6. The Minister of Labour determined the proposal regarding the provision of medical certificates, and the Department of Labour was not asked to provide advice on this matter in the policy development process.
  7. The preferred package of policy options, option C, provides a reasonable balance in meeting employers' and employees' interests and represents a "middle ground" that also addresses the main areas of concern with the legislation.
  8. This option will address the review's objectives in the most effective way. While some changes will provide greater choice, others will make it easier for both employers and employees to understand and comply with the legislation. Where appropriate, changes to the legislation are accompanied by some limitations on employees (to address concerns about increased compliance costs to employers) and some limitations on employers (to protect statutory minimums).
  9. Overall, option C is likely to have minimal impacts on small businesses. It is likely to have some positive impacts on sectors that work variable hours, days or shifts, and sectors that have variable rates of pay. It may increase compliance costs for some employers, such as those with traditional working hours or where pay rates and hours are easily identified. As the Act specifies the minimums for calculating holiday and leave payments, these employers may agree to continue with their current method of calculating payments providing it is equal to or greater than that provided in the Act. Option C would have less of an impact on salaried workers and their employers than option B.

Implementation

  1. The Department recommends implementing any legislative changes to the Holidays Act 2003 by 1 July 2011. This is to allow sufficient time for employers, employees and providers to become familiar with the new requirements, negotiate changes to employment agreements, where necessary, and to make changes to payroll systems.
  2. The Minister of Labour intends to release the Cabinet paper publicly once decisions have been made by Cabinet in respect to the proposals outlined in the paper.
  3. The Regulatory Impact Statement will be published on the Department of Labour's website, subject to any appropriate withholding of information under the Official Information Act 1982.
  4. Before any changes to the Act come into force, the Department of Labour will undertake an awareness raising campaign targeting employers and employees. The aim of the campaign will be to inform employers and employees of the changes and how they may be affected and to prompt employers and employees to be prepared before the changes come into effect.
  5. The awareness raising campaign is likely to include print and internet advertising and articles in targeted media. We will use existing stakeholder networks, including the New Zealand Payroll Practitioners' Association, to target specific groups. We will also work with the social partners to identify potential information needs and explore how they can assist with informing their members.
  6. On an ongoing basis, the Department of Labour will provide information for employers and employees through its website, contact centre and other customer services.
  7. The awareness raising campaign and ongoing information provision will be undertaken within the Department of Labour's existing baseline funding. The Department may need to reprioritise funding if the Holidays Act online tool needs to be updated.
  8. It is expected that there will be an increase in calls to the Department's contact centre and complaints to Labour Inspectors when changes to the legislation first come into effect. It is uncertain whether complaints to Labour Inspectors will increase or decrease from existing levels once the initial implementation period is over.

Monitoring, evaluation and review

  1. The Department of Labour will provide the Minister of Labour with advice on the monitoring and evaluation of the impact of any changes to the Holidays Act.
  2. As well as a potential formal review of any amendments, the Department will undertake informal monitoring of the Holidays Act through media reports, research and contacts with the Department's contact centre and Labour Inspectors.

Appendix One:

Assessment of Policy Options for the Holidays Act 2003


Footnotes

[1] After six months’ continuous employment, the Act provides three days’ bereavement leave upon the death of a close family member and one day’s leave upon the death of another person where the employer accepts that the employee has suffered a bereavement.

[2] Average weekly earnings is based on an average of gross earnings for the 12 months immediately before the end of the last pay period before the annual holiday.

[3] Ordinary weekly pay is the amount the employee receives under their employment agreement for an ordinary working week. If it is not possible to determine ordinary weekly pay, then it is calculated based on a four week average. An employment agreement may specify a special rate of ordinary weekly pay that is equal to or greater what would otherwise be calculated under the Act.

[4] Relevant daily pay is the amount an employee would otherwise have earned on the day if they had worked. If it is not certain what the employee would have received on the day then there is an averaging formula based on gross earnings for the last four weeks. An employment agreement may specify a special rate of RDP that is equal to or greater than what would otherwise be calculated under the Act.

[5] The Group consisted of: Peter Kiely (Chair, Barrister and Solicitor), Paul Mackay (Business New Zealand), Helen Kelly (New Zealand Council of Trade Unions), Philip Doak (Air New Zealand) and James Ritchie (New Zealand Dairy Workers Union).

[6] This result indicates businesses’ views of compliance for the Holidays Act relative to other types of compliance costs. It does not provide an indication of the size of compliance for the Holidays Act. This survey does provide information on the size of employment-related compliance costs, which would include the Holidays Act. In 2008, employment-related internal compliance costs were estimated to be $4,687 (based on 198.1 hours at $23.66 an hour), 34.8 percent of respondents used external advice (the average external cost was estimated at $7,202). Employment-related compliance costs were estimated to make up 25.8 percent of total compliance costs. By comparison, in 2003 (before the current Holidays Act was in force), employment-related internal compliance costs were estimated to be $10,466, 58.3 percent of respondents used external advice (the average cost of which was estimated at $8,625) and employment-related compliance costs were estimated to make up 29.4 percent of total compliance costs.

[7] Department of Labour (2009) The effect of the Holidays Act 2003 on small and medium enterprises – a qualitative study. Available at: www.dol.govt.nz

[8] This may also be reflected in the 2008 Business New Zealand–KPMG compliance cost survey where only 13.8 percent of firms that had been operating for a year or less listed the Holidays Act as their top compliance cost priority, compared with 21.1 percent of all firms in the survey.

[9] Differences between the Department of Labour’s research and the Business New Zealand–KPMG surveys may reflect differences in the methodologies, including the type of firms included in the research.  For instance, the Business New Zealand–KPMG survey covered firms of all sizes, while the Department of Labour research focused on SMEs.  In the Business New Zealand–KPMG survey, firms employing between 50 and 99 employees were more likely to list the Holidays Act as their top compliance cost priority (31.1 percent).  In the Department of Labour research, the firm with the highest number of employees (75 employees) had the highest compliance costs.  Five of the firms in the research had between 0 and five employees.  Only 17.8 percent of firms this size listed the Holidays Act as their top priority in the Business New Zealand–KPMG survey.

[10] The Group made some progress towards agreeing on an alternative formula (called standard daily pay). The Group did not agree on some of the components of the formula.

[11] Using the “but for” test, an employer or employee can ask themselves “would an employee have worked on this day but for the public holiday/sick day etc”. The test is recognised in case law but is not actually listed in the Act as one of the factors that employers and employees can use to work out an otherwise working day.

[12] The Department provides an on-line tool to help employers and employees calculate what an employee should be paid (that is, their "relevant daily pay" for their day off or for working on a public holiday)

[13] These included using standard daily pay to calculate payment for annual holidays; changing the way holiday and leave entitlements are calculated to be in work units (for example, annual holidays would be accumulated at 4/52 of contractual hours and sick leave at 1/52 contractual hours); including alternative holidays in annual holiday balances (and thereby changing the amount of alternative holiday received for working on a public holiday and removing employees’ ability to choose when they take the alternative holiday); and allowing employers and employees to agree to different calculation methods that may be lower than those provided in the Act.

[14] Because the calculation of ADP is over a 52 week period it effectively smoothes out increases in pay. This avoids the spiking that can be caused by RDP’s four week averaging formula which delivers a payment that is linked to the employee’s recent earnings.

[15] It appears that a majority of wage and salary earners experience an increase in their pay rates each year. In the year to September 2009, 47 percent of surveyed salary and ordinary time wage rates increased. This is lower than previous changes, which ranged between 55 percent (in the year to June 2009) and 62 percent (in the year to September 2008) (Labour Cost Index).

[16] According to the Survey of Working life (March 2008 quarter) 62.7 percent of employed people said they usually work all of their hours between 7am and 7pm, Monday to Friday (standard working times), and 35.3 percent said they did not. With regards to variable hours of work, when the SoWL asked about workers’ overall patterns 4.7 percent of respondents said that they worked shifts that changed from day to day or week to week.