DOES ANNUAL HOLIDAY ENTITLEMENT EXTEND PAST AN EMPLOYEE’S TERMINATION DATE?

Author: David Jenkins, NZPPA CEO



Please note:  For this post, I am talking about sick leave, but the criteria under Section 63 of the Holidays Act also apply to bereavement leave, and Section 72D (1) applies to family violence leave.

In this post, I want to discuss how an employee that does not meet the requirements of continuous employment can still get sick leave entitlement and how payroll needs, in some situations, to apply a moving assessment (work test) to ascertain if the employee has met the requirement to get sick leave entitlement. 

I want to start with a few quick points: The Holidays Act provides sick leave entitlement once the employee has met the time requirement.  There is nothing in the Act that accrues sick leave, but some payroll systems are doing this and will show it on an employee’s payslip.  This is totally wrong and sends the wrong message on what the employee has a right to take.  The employer can provide sick leave in advance, but that is the employer’s choice, not the payroll providers or their system.  Also, always keep in mind that the Act states sick leave in days and not part days.  So, if the employee only wanted to take a half day sick, they could lose a full day of their sick leave.  Again, it is totally up to the employer, and most allow the employee to take sick leave in less than a day without taking a full day of entitlement from the employee.

Employee meets six months current continuous employment

There are two ways an employee can meet the criteria to get sick leave entitlement under the Holidays Act.  This is defined under Section 63(1).  I will briefly mention Section 63(1)(a) as this is the typical application of how an employee would get sick leave if the employee has completed six months of continuous employment with the employer. 

This is straightforward and easy to apply if the employee has worked a period of continuous employment (of six months) that is current.  This would typically be from when the employee started with an employer, but it could mean the employee did not meet the requirements of continuous employment, but later in their employment, they do (payroll needs to check).  I get asked from time to time if the criteria are based on employment with one employer or if the employee works for different employers, is it across all employment?  The easy answer is just for the one employer as the criteria are based on the period with their employer based on the employment agreement with that one employer.

For payroll, the employee’s employment agreement should be the key document to determine if the employee’s employment meets the criteria of continuous employment over six months.  Follow that up with the reports available in payroll, and this should be straightforward to confirm.

Employee does not meet six months current continuous employment

Section 63(1)(b) provides a work test criterion for employees that do not clearly meet the continuous employment requirement under the previous section.  The work test identifies what these employees need to meet to get sick leave entitlement, starting with the timeframe: “the employee has, over a period of six months, worked for the employer”.  The key to this section is to understand the “and” and the “or” included in the work test sub-clauses in what the employee needs to meet to get sick leave, which is at least an average of ten hours a week during that period, AND no less than one hour in every week during that period OR no less than 40 hours in every month during that period.  In plain language, an employee does not need to work every week because it states an average and then an hour a week or 40 hours a month.

So how to apply this in payroll?

And the fun begins…

Because Section 63(1)(b) states over a period of six months, this type of employee could meet the six months criterion at any time to receive their initial or ongoing entitlement to sick leave. 

For example:

An employee starts, and over the first six months, they do not meet the criteria of current continuous employment s63(1)(a) or the three options under s63(1)(b).  However, in another three months (nine months from starting), the employee requests sick leave, and another check is undertaken to confirm if they are now eligible for sick leave entitlement.  By applying the work test under s63(1)(b) to look back from the nine-month mark to six months ago, the employee could now meet the criteria to get sick leave entitlement of ten days.

What this means for payroll is as soon as the employee meets the six-month work test, they get their entitlement of ten days of sick leave, and this then means from that point, the next assessment will be in 12 months.  So, it won’t be the standard assessment timeframe that would be used for an employee that meets the six months of continuous employment and then 12 months after that.  The assessment at the 12 months mark will again be the six months of continuous employment, or the work test will be applied if that does not fit.  It could mean the employee gets another ten days of sick leave entitlement (the maximum is 20 days) or does not meet the continuous employment criteria or the work test to get another allocation of sick leave entitlement.  So, for this type of employee, their entitlement date for sick leave and the reassessment 12 months later won’t follow a consistent timeframe for payroll but is based on the result from the work test taken at the time.  This is why the work test should be seen as a moving assessment.

It may also be useful to see if a payroll report could be created that includes the employees that need the work test applied to see if the work test has been satisfied and the employee is now eligible for sick leave entitlement at any time instead of trying to work it out in an Excel spreadsheet.  This will save a lot of time and hassle for payroll if you have a payroll system with an ad hoc report writer and database structure that can be used to achieve this.

In conclusion, the employee can gain sick leave in two ways, and payroll needs to fully understand both.  If employees need the work test applied, then payroll must know how and when it can be used and that it won’t be a standard timeframe but more of a moving assessment. 

Note: This post was provided with permission from the New Zealand Payroll Practitioner Association (NZPPA)

WHEN SHOULD THE SIX YEARS BE APPLIED WHEN LEAVE ISSUES HAVE BEEN DISCOVERED WITH THE HOLIDAYS ACT?

Author: David Jenkins, NZPPA CEO

I have had several questions on this as part of Holidays Act remediation, and there still seems to be a lot of misunderstanding in this area. If not applied correctly, it can create even more problems for an employer, especially for payroll. So, in this post, I cover from what point the six years is “taken from” when needing to go back and remediate issues with how leave payments and entitlements were provided to an employee.

Firstly, why six years? 

This is from the holiday and leave record requirement, specifically, section 81(4) of the Holidays Act, which requires the record “must be kept for not less than six years after the date on which the information is entered”. So, this is the law, and there’s no way around that. This also becomes the liability period when the employer is accountable for any underpayments discovered (and potential interest, but that’s another story) payable to the employee. 

I will make one point here: it is common to find that the requirements of the holiday and leave and the wage and time records (under S130 of the Employment Relations Act) have not been recorded correctly or retained. This is where most of the problems for an employer and payroll come from. This area must be checked by payroll to ensure the requirements are fully met, at least for compliance if not payroll best practice. Yes, the Act states “not less than six years after the date on which the information is entered”, but the key to this is when the issue with leave was identified. Identifying a problem could come from a range of areas such as payroll, management (even HR), an employee or their union, or an external party (auditor, or even a Labour Inspector).

What is wrong with this?

I have seen two variations of what happens where the issues with leave are not acted on and the date for the six years is not applied correctly when action is finally taken.

Firstly, it is when the issue has been identified by payroll and payroll sits on it and does not share this with the business. Secondly, payroll informs management and/or HR, and the business decides to take no action. 

Regarding point one, when payroll sits on issues with leave, not telling the business is usually seen when you have a sole charge payroll practitioner that has been left to control payroll over a long period of time but has not actually kept updated with legislative requirements. They sit on the issues because they fear being found out that payroll has not been run correctly. This should never happen, and management is at fault for allowing this to occur in the first place. Payroll compliance must be transparent to the rest of the business as it is a business-critical activity. 

The second point is where the business is told of the issue and chooses not to act. The reasons for this can be many and varied, but many businesses think the new Holidays Act (whenever it arrives) will resolve all past and present problems (it won’t, as the new Act is about going forward, not back to resolve past issues). Or they may think the time involved in resolving the problems, including the cost is too great for the business to undertake. Now both variations described above are totally wrong and go against the law and being a good employer.

From what point does payroll need to take the six years?

So, when an issue is identified with leave – I don’t mean we think there is an issue, I mean clearly defined, tested and confirmed – this is the point in time the six years back should be taken from not two years later when the business finally decides to act on what they have known for the last two years. By making an employee wait a further two years to be paid correctly for leave taken, the employer will be liable for eight years of leave remediation. If you think that is harsh, then tough. The employer is bound by law, and they should have acted when they knew there was an issue. The only victim here is the employee! 

In payroll terms, this is all about compliance, and that should be number one on your list along with payroll best practice. Leave issues should not happen if you are challenging and reviewing your payroll software, employment agreements, employee work patterns and payroll setup.

In conclusion, it is in the best interest of the business and payroll to front up and resolve Holidays Act issues when known and proven. Not to hide or hope for a miracle to occur that will sweep leave issues away. I always state that payroll is all about paying employees correctly and on time. Paying leave correctly is a fundamental part of our role and profession, so if needed, fight to do the right thing.

Note: This post was provided with permission from the New Zealand Payroll Practitioner Association (NZPPA)