Annual leave: what to do when four turns to five

Matt McGoldrick, a member of Bell Gully's employment law team, takes a look at where employers will be after 1 April 2007 when changes to the Holidays Act 2003 boost the statutory minimum annual leave from three weeks to four weeks. He predicts that the change will not be a holiday for employers!

When the inevitable improvement in the weather happens at this time of the year, it is tempting to take annual leave now rather than at Christmas time (which would have been a sensible idea this year given New Zealand had some of the most inclement weather on record). For some whose annual leave entitlements are generous or for those who "store up" annual leave, this option is achievable.  However, from 1 April this year, many more employees will have this option when the Holidays Act 2003 changes to boost the statutory minimum annual leave from three weeks to four weeks.

The move from three to four

In what has been one of the most highly publicised changes to employment law in recent times, all employees will, from the anniversary date of their employment upon or after 1 April 2007, become entitled to four weeks' leave. Employees are not entitled to the extra period until their anniversary date, rather than simply becoming entitled on 1 April.

For employees whose holiday pay is regularly paid with their salary or wages (such as employees on fixed term agreements), where their employment ends within 12 months or part way through a year, their annual holiday pay will increase from 6% to 8% of their gross earnings. This rise will only apply to any entitlements accruing after their anniversary date, so that entitlements accruing before this date remain at 6% of the employee's gross earnings.

To take account of this change, employers should review employment agreements in place and, more importantly, review their payroll systems to accommodate this legislative change. In particular, this will require a consideration of exactly what each employee's entitlement will become.

This will not be particularly difficult when it comes to the majority of employees. For example, for those working 8.30am to 5.30pm, Monday to Friday, their entitlement will rise from a minimum of 15 working days to 20 working days' annual leave.

For employees who do shift work, or for other employees who work irregular hours, this calculation will not be so easy. For these employees, an employer must analyse exactly what constitutes a "genuine working week" for that particular person (for the purposes of determining the actual amount of days that an employee will be entitled to annual leave).

The Act provides that an employer and employee may agree on how this entitlement is to be observed, provided that it genuinely constitutes a working week for that employee. The factors that should be taken into account when determining employee's entitlements include the employment agreement, work patterns, rosters and any other factors about when an employee works.

This may mean that employers who require their employees to work irregular shift patterns or other similar irregular hours may be obliged - to meet the requirement of four weeks' annual leave - to allow these employees greater than 20 working days' annual leave each year.

So how about five weeks' annual leave?

There has been a suggestion that employees who are already entitled to four weeks' annual leave should be entitled to five to maintain their position compared to those entitled simply to the statutory minimum.

For most employees, this argument is unlikely to receive any traction. Put simply, the answer will be the proper interpretation of an employee's annual leave entitlements in their employment agreement. An employee who already receives four weeks' leave (and their agreement simply states that their entitlement is to four weeks) will not be directly impacted by the amendment to the Act. In most cases, the statutory minimum has simply caught up with what were previously more generous entitlements.

A residual issue will remain over the interpretation of particular provisions of employment agreements relating to annual leave. An employee may be entitled to five weeks' leave if their employment agreement states that they will be "entitled to annual leave in accordance with the Holidays Act 2003 plus an extra week's leave" or something similar. This type of provision is more likely to be in collective agreements, and employers who are party to collective agreements should probably review the particular annual leave clauses they contain.

Chance to review employment agreements

The change to the Holidays Act should be viewed as an opportunity to perform a general review of agreements for both legislative compliance and clauses that might not otherwise be included in them. In particular, this could include:

• employee protection provisions (which provide a process for consultation obligations and transfer in the case of asset sales or restructuring);
  
  
• clauses concerning workplace policies (including email and internet policies, appropriate use of workplace resources policies and other policies which cover an employee's obligations);
  
  
• suspension provisions (as any right to suspend must be in the employment agreement); and
  
  
• medical verification clauses (which provide, among other things, for the ability for employers to require employees to submit to medical examinations in the event of absence for sickness).

So, while employees might be spending their extra week's entitlement to leave on the beach, the change will not be a holiday for employers.

For further information, please contact your usual Bell Gully adviser or one of the following members of Bell Gully's employment team:

AUCKLAND

Rob Towner
Partner

WELLINGTON

Andrew Scott-Howman
Partner

Enquiries and information

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