The announcement of a task force to review the Holidays Act late last month provoked a lot of excitement in the payroll community. At Datacom, we’re acutely aware of the difficulties that employers have been facing in trying to meet their obligations under the Holidays Act.
The terms of reference make for interesting reading (here). The task force will be made up of employer, employee and government representatives and the scope of the review is extremely wide.
It’s encouraging that such a review is taking place, but it’s clear that the group faces significant challenges. The task force has been given 12 months to provide recommendations (assuming they are able to reach agreement during this time). It is then anticipated that a further 12 months will be required to draft and pass any new legislation, followed by a further 12 months to allow system providers to make changes.
Changes at least three years away
Realistically it will be three years or more before employers may get any relief from the existing complexities of the Holidays Act. What’s more, the terms of reference make it very clear that the scope of the review does not include issues of historical underpayments, which means that the existing Act may remain relevant for employers for many years to come.
In fact, to be specific, claims relating to non-compliance with the Holidays Act can be sought back for six years from when the issue is identified. With the clock stopped from when the issue is brought to the attention of the enforcement agency, there could be nine years of remediation to deal with by the time the Holidays Act is actually overhauled!
In addition, companies may need to engage an audit firm to demonstrate independence and help with the remediation process adding significant cost, and there is the risk of brand damage to employers who have transgressed. If employers have underpaid their staff, they may have to advertise this fact, in order to communicate with people who may be owed money, but no longer work for the organisation.
Getting it right - now
Given that any changes are at least three years away, it’s critical the employers understand and can work with the existing act now. We advise all employers to read the MBIE guidance on the Holidays Act so you understand what this means for your organisation.
The following steps will also help ensure your organisation remains compliant:
- Respond to changes in employees’ work patterns – If an employee’s agreed work pattern changes, employers should discuss the implications for the employee’s holiday entitlements with them in good faith, and in a timely manner. Some holiday and leave provisions require specific agreement with employees (remembering that there is a legal minimum that must be adhered to)
- Review your organisation’s work arrangements – While irregular work schedules are unavoidable for some organisations, be aware that this will make it more difficult and costly to calculate the correct holiday pay. Consider reducing highly irregular work arrangements where possible
- Ensure your payroll systems are fit-for-purpose – Examine your existing processes to make sure you aren’t incurring liability. If you use a third-party payroll service provider, check what they’re doing to help
- Err on the side of caution – When in doubt about any pay entitlement, it’s best to choose the option that’s most favourable to the employee. Avoiding any chance of underpayment will reduce your risk as well as the future cost of any potential investigation
We also advise employers to keep thorough, up-to-date records on their employee’s pay and hours, as missing data can make the auditing process much longer.
Datacom and the existing Holidays Act
Datacom is committed to make working with the existing Act easier despite the uncertainty that exists in the future. To help, we have been working on making changes to better handle situations where employee’s working weeks change and how this effects their annual leave entitlements. Fundamentally, we are working on a system that holds annual leave balances in weeks, just like the existing Act states, but still allow employees to take leave in hours or days, just like employees are used to. We think this approach will make things much easier to administer from a compliance perspective, while still providing employees with the flexibility that they are used to when taking leave. We’ll have more on this topic in a future article.