One of the catchphrases often heard about the Holidays Act is that it is “A minimum entitlement Act.” Another is, “As an employer, you can always do better than the Act.” In this regard, many employers provide better than the legislation by giving additional leave entitlements, but how they have provided them often creates ongoing problems and issues for payroll.

Some people will read this article with a focus on the downtrodden employees.  This article discusses employers who decide to provide better than the law.  By doing better, I do not see why the employer can’t make it work for the business (and payroll) and the employee; give and take goes both ways.

So, in this article, I will cover a range of leave types commonly provided to employees in addition to the minimum entitlement provided under the Holidays Act.  I will separate them, but there is a bit of a double-up on how they should be managed.  The additional leave types that will be covered are:

  • Additional annual holidays
  • Additional sick leave
  • Additional bereavement and family violence leave
  • I will also mention additional parental leave provided on top of the Parental Leave and Employment Protection Act.

Additional annual holidays

It is common for employers to give employees an extra week or weeks of annual leave.  I am not talking about a purchasing leave scheme; the employer just provides additional leave as a business decision to support their employees (helping with work-life balance, retention, or even being seen as an employer of choice to attract employees to join the organisation).  This is about the culture of the business.  Of course, there is a cost involved in doing this.

So, what does it mean in payroll terms to provide additional annual holidays?

  • It has nothing to do with the Holidays Act (which focuses on minimum entitlement), as it is outside what the law provides.
  • It does not need to follow any of the rules of the Holidays Act (e.g., the criteria for getting leave, how it is used, etc.).
  • It does not need to use the calculations provided under the Holidays Act.
  • It does not need to follow the same record-keeping requirements as minimum entitlement does under the Act.
  • It does not follow the same liability period if issues occur, as the Act has.  Instead, any issues would be based on what was agreed upon and when.

How to make this additional annual leave workable in payroll and for the business:

  • First, “KEEP IT SIMPLE” – do not create extra leave based on a pyramid of complexity.
  • Keep this additional leave separate from the minimum entitlement provided under the Act, so code it differently.
  • Do not add or include it in the minimum entitlement provided under the Holidays Act (in the same pot as such).
  • State annual holiday minimum entitlement provided under the Holidays Act must be used first (to reduce liability).
  • Do not create a particular calculation. Base it on the employee’s ordinary pay rate (again, keep it simple).
  • Look at a “use it or lose it” option so the employee uses the leave and does not get the chance to accumulate, becoming a future liability. (It also undermines the purpose it was provided for – the employee taking leave).
  • It cannot be paid out while still employed or on termination. The purpose is to take it, and that is what the focus should be.

Other issues that can be caused when you treat the additional annual holiday the same as a minimum entitlement:

  • If you have issues with the calculations for minimum entitlement annual holidays (creating underpayments), you have created an even bigger mess by using the same calculations for additional annual holidays provided by the agreement.
  • By adding extra leave into minimum entitlement, how do you know which is which?
    • When leave is paid out (by law and by agreement)
    • If there are issues with what the employee received for their entitlement (four weeks) over a period of time.

Changing 8% to include additional leave being provided

  • Under the Holidays Act, which was implemented on 1 April 2004, we had three weeks of annual holiday entitlement, and the accrual was 6% of gross earnings. On 1 April 2007, it changed to four weeks of annual holiday entitlement, and the accrual changed to 8% of gross earnings.  I often see that when a fifth week is provided by agreement, the accrual is changed to 10%.
  • This is wrong. As repeatedly said, the fifth week is not law nor part of the Act.  Just because the employee has been given a fifth week does not change the law (which is 8%).  If you want to provide 10% to the employee for accrual, then that is another agreed term.

Additional sick leave

Sick leave is the most common additional leave type after annual holiday entitlement, where employers regularly offer more than the minimum provided under the Holidays Act.

Additional sick leave as an agreed term:

  • Is paid at the employee’s ordinary rate of pay.
  • Code it differently and keep it separate from sick leave minimum entitlement.
  • Sick leave minimum entitlement must be used first.
  • To get extra sick leave, the employee must perform at a specific level or be in the workplace for a qualifying period.
  • You can put extra conditions on the employee if they use this leave, such as going to the company doctor.

Additional bereavement leave

Some employers have a policy that employees can get five days of bereavement leave for a close family member (three days as per the Act and two days by agreement).  Another version would be tangi leave (usually five days per instance).  Ensure any additional bereavement leave is open to all employees, not just one group, or it could be seen as discrimination or disadvantageous.

Additional bereavement leave as an agreed term:

  • Is paid at the employee’s ordinary rate of pay.
  • Code it differently and keep it separate from bereavement leave minimum entitlement.
  • The minimum entitlement to bereavement leave must be used first.

What not to do with additional bereavement leave (not payroll):

  • Don’t ask for proof of bereavement, such as a death notice to be provided for a close family member.  In some cultures, this is not done and may offend.  It could send the wrong message at the wrong time to the employee in their time of need.
  • Do not dictate how employees are to use their additional bereavement leave.  Employees may have cultural, religious, immediate family, and other needs regarding how they want to grieve.  Don’t tell an employee how they are to grieve.

Additional family violence leave

Supporting an employee may see an employer provide additional leave in this area on a case-by-case basis.  NZPPA suggests not providing a general policy on this area other than offering that the employee contact management if they need additional support or assistance (there may be a specific person in the business they should contact).

Family violence leave as an agreed term:

  • Is paid at the employee’s ordinary rate of pay.
  • Code it differently and keep it separate from family violence minimum entitlement.
  • The minimum entitlement to family violence leave must be used first.
  • Call it something else so it does not cause any issues for the employee if shown on a payslip, etc. For example, if an abusive partner gets access to their payslip and sees it.
  • No mention of what this leave is for should be contained in any payroll report that could identify an employee. The business decides what role or position can access the information (if needed) from payroll, and payroll enforces that instruction.


Create an evaluation period for any new additional leave type being provided

In previous articles, I have mentioned the phrase “keeping up with the Joneses” to explain what payroll faces when management or HR sees something shiny and new and dumps it on payroll to implement without providing the details we need.  So, payroll invests a lot of time and resources into getting this new initiative in place, only to find that there is little interest or uptake from employees.  Payroll then ends up managing a process that basically does nothing for the business or its employees.

So, relating that back to the point of this article, before jumping in and providing additional leave, the business needs to do some research on what employees need, how it should be provided and when, what the business hopes to get out of doing this (return on investment), and what it will cost the business the first year, the second year, and so on.

If things don’t work out, the business needs to have an exit strategy if the point of providing additional leave is not achieved.  So, any new additional leave should be framed as being provided subject to an evaluation period, which could mean the leave is withdrawn when evaluated later.  The evaluation terms can be published, and employees involved in the process, so it is not just ripped out, causing potential ill will.  The point is, why have additional leave that does nothing for the business and employees?  It helps ensure payroll stays streamlined, focusing resources on what is necessary – compliance and paying employees correctly.

In conclusion, additional leave provided to an employee is an agreed term, so make the agreed term work for the business, payroll and the employee.  The bottom line is that the employee is getting something extra, so as part of the agreement, keep it simple so it does not cause additional work or cost for the business and no more headaches for payroll.  ABOVE ALL ELSE, DO NOT LINK ADDITIONAL LEAVE TO THE HOLIDAYS ACT. One nightmare is enough, PLEASE!

NZPPA supporting NZ payroll since 2007!

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