The government has recently announced the introduction of a new Employment Leave Act which will eventually overhaul the Holidays Act 2003, resulting in wide-ranging effects on both employers and employees. The decision follows the mass of criticism the Holidays Act has received over the years for its complexity and ambiguity.
Why the changes?
The reform represents some major departures from the current regime, including shifts in the way leave will be earned, tracked and paid. Whilst the proposed changes promise greater clarity and fairness overall, they will also no doubt require significant operational adjustments for employers.
Some employees will benefit from the changes, but for others it could result in substantial swings in leave entitlement values.
Key proposed changes
- Sick Leave: will shift to an hours-based accrual system. Workers will start accruing leave on an hourly basis from day one of employment.
- A shift to pro rata sick leave: employers will benefit from a fairer system where sick leave entitlements are proportionate to hours actually worked by an employee.
- Annual leave: will shift to an hours-based accrual system. Workers will start accruing leave on an hourly basis from day one of employment. Workers will benefit from greater flexibility as they will be able to take only the hours needed off work rather than a full day. Where a worker has a larger annual leave balance there will be more flexibility to cash it up. Workers will be able to cash up 25% of their total annual leave balance each year. Employers who agree to cashing up will benefit from reduced leave liability.
- Cashing up annual leave: Where a worker has a large annual leave balance there will be more flexibility to cash it up. Now they will be able to cash up 25% of their total annual leave balance each year. Employers who agree to cashing up will benefit from reduced leave liability.
- Leave Compensation Payment for casual employees: casual employees will generally see an increase to their pay by receiving an upfront payment of 12.5% for each hour worked, instead of accruing annual and sick leave or receiving the current 8% Pay-As-You-Go payment.
- Leave Compensation Payment for additional hours worked: any hours worked on top of contracted hours (over-time) will not accrue annual or sick leave, but employees will receive an upfront payment of 12.5% for each additional hour worked.
- Family Violence and Bereavement leave: All workers will now have access to bereavement leave and family violence leave entitlements from the first day of employment. There will be the ability to take part days of entitlement on the same days as sick leave.
- Returning from parental leave: new parents will now receive their full pay for annual leave when they return from parental leave.
- Mandatory pay statements: employers will now be required to provide clear pay statements each pay period. They will need to itemise pay and leave in a way that is transparent and easy for workers to understand.
What is next?
Until the current Holidays Act is repealed, and the new Act comes into force, employers still need to comply with the existing rules. There will be a 24 month implementation period between when the Bill has passed and when it comes into force. This will give employers and payroll a window of opportunity to make the necessary changes to their business and payroll systems.
