Why are so many companies having to pay out extra holiday pay? Here’s all you need to know.

A long list of companies are being forced to pay out extra holiday pay to their employees after failing to interpret the Holidays Act correctly. The latest is Restaurant Brands, which joins the likes of NZ Police, Stuff, Bunnings and even the super-ministry MBIE in having to pay back holiday pay to their staff.

What even is the Holidays Act?

The Holidays Act 2003 covers pay and entitlements surrounding all types of leave and public holidays for employees in New Zealand. While it’s easy to follow for those working standard hours, the act has proved complicated for employees on shift work, variable days and hours, or with flexible work patterns, because “the act doesn’t really apply very easily to that,” says employment lawyer Rebecca Rendle. This means employers have difficulty interpreting and applying the rules.

What is going wrong?

There is a ton of complications with the act that have resulted in widespread non-compliance – essentially, underpaying staff what they’re entitled to. Unite Union, which represents employees in hospitality, security and retail, began approaching major companies that they identified as having holiday pay issues in 2015. The first issue Unite noticed was miscalculations for employees working inconsistent hours, which is the nature of hospitality and similar industries. Most of the companies Unite deals with have employees on variable hours, (or zero hour contracts, before they were abolished in 2016), “and none of the companies appeared to be doing a ‘higher of’ comparison”, says Mike Treen, Unite Union national director.

‘Higher of’? Higher of what?

The ‘higher of’ comparison required by the act was rarely used by employers when calculating payment for annual leave, which allowed for some sneaky underpayments. The act says that employees must be paid whichever is higher of their ordinary weekly pay or their average weekly earnings for the last 12 months as their rate for holidays. Treen thinks many companies were deliberately ignoring the comparison rule in order to pay employees as little as possible.

I don’t work regular hours – what happens with my pay?

Another tactic some companies have been using is manipulating staff rosters to make sure employees miss out on qualifying for ‘day in lieu’ pay for a statutory holiday. Employees are entitled to alternative holiday payments if the holiday falls on a day they would usually work. But for work based on rostering schedules, there is not always a clear definition of days an employee would usually work.

These companies operate a “restrictive determination of earning a lieu day, or earning time and a half, or being paid for a public holiday if you didn’t work”, says Treen, meaning employers are missing out on statutory holiday pay they deserve.

Some people also work with extra conditions, such as overtime payments, night allowances, or different rates for working on different sites (for security guards). This further complicates calculations. Treen says employers calculate the holiday rate from their base rate without taking extra conditions into account.

“All of this adds up to a lot of money for a lot of workers,” he says. Each small miscalculation has built up into repayments needed for many workers in New Zealand.

Who is to blame?

Most employers “don’t realise there are issues, because they rely blindly on the likes of a payroll programme”, says Danny Gelb, an employment law mediator. But payroll systems can only work from the information employers input, says David Jenkins, CEO of New Zealand Payroll Practitioners Association (NZPPA).

While some payroll systems are flawed, or not used correctly, Jenkins says most of the issues can’t be blamed on payroll systems, “because the act should tell them the rules of how to do it”. He says “the act itself doesn’t give software the ability to be able to do it correctly”, and the act in its current state is unworkable.

“It’s a nightmare for payroll, it’s a nightmare for employers, I feel sorry for employees,” says Jenkins. It also isn’t always the fault of the employers, says Rendle. She has seen employers try their best to pay employees correctly, “but because of the complexities of the act, there’s been inadvertent non-compliance.”

Is it being fixed?

A government-appointed taskforce is working on recommendations for changes to the Holidays Act 2003, and it will be reporting back in the next month or two. Rendle is hopeful for a complete rewrite, but doubts it will be anytime soon. “In the meantime, employers need to be doing their best to ensure that their current systems are compliant,” she says.

Employers also need to ensure they are keeping accurate wage and time record for all employers for at least six years. Under the current legislation, employers are only obliged to make repayments regarding the last six years of non-compliance. That’s the legal obligation, but some companies have gone above and beyond, such as Bunnings, which is undergoing 15 years of remediation. “If they can do it, why can’t Restaurant Brands and everybody else do it?” says Treen. MBIE has ordered Restaurant Brands to remediate back to 2012, but Treen says should be going back to 2009, six years prior to Unite Union asking them to investigate.

What if I’ve left the company?

Another part of the act that employers skip over is that if an employment is terminated close to a public holiday, if the employer has enough annual leave left to cover that holiday, they are entitled to holiday pay.

For example, if you leave your job just before Christmas, but still have a couple weeks of annual leave owed to you, then the Christmas and New Year statutory days should be paid out as well, so long as they fall within the period of annual leave that you still had owing to you when you left.

So if I think I’ve been underpaid…?

The first thing you should do, agree the experts, is to approach your employer, and past employers, to discuss whether they think they are following the rules. If the issue is not resolved, you can lodge a claim with the Employment Relations Authority.