Under section 42 of the Parental Leave and Employment Protection Act it details how OWP is not used when an employee that has been on parental leave returns to work and then takes annual holiday entitlement that was earned while on parental leave or in the 12 months on the employee returning to work. What this means for payroll is if the employee uses their annual holiday entitlement only AWE is used for this entitlement and not the greater of AWE and OWP. Any entitlement earned prior to the employee taking parental leave (when taken) still uses the greater of AWE and OWP.
In my first post of 2023 I want to state what NZPPA’s position had been on the above, why we changed our position and why we have now changed back to our original view (I already need a break and its only January!).
NZPPA’s position up until recently has always been that the Section 42 acts on entitlement earned while the employee was on parental leave and also for the entitlement, they earned in the 12 months on return from parental leave so this can mean that for two years of annual holiday entitlement only AWE can be used.
To explain the reason for this I will give a couple of plain language examples (hopefully): an employee takes parental leave and is off on extended leave for the full 52 weeks. While away they receive another 4 weeks of annual holiday entitlement. On their return to work if they take some of this entitlement like a week it will be calculated using only AWE (based on Section 42). Look at it another way, if the employee returns to work and on day one, they resign, they won’t walk away with 4 weeks of annual holiday at its full rate because if OWP was able to be used it is based on the agreed week (from the employee employment agreement). Section 42 protects the employer from this happening with only AWE being able to be used. A further example: on returning to work on day one that day happens to be the employees ANN (entitlement date) to receive their next entitlement of 4 weeks and they resign, again if OWP could be used the employee could walk out the door with 4 weeks at the full rate. This is another protection for the employer. Of course, the other side to this (I called this the fluffy side of payroll) is the purpose of calculated leave at AWE is that the employee gains annual leave entitlement while on parental and if they return to work and stay the value of that leave increases in value so it encourages the employee to return to work, for the employer they get ROI and can justify the additional expense of paying for this leave as the employer is back at work.
In late 2022 our position changed in regard to the above because we had a number of questions on this and sought a legal opinion. That opinion stated that Section 42 only applied to one instance of entitlement and not the two. This was because of Section 42 and how it is worded with “or” being used implying that it was one option and not “and/or” implying more options.
Section 42
(2) If an employee becomes entitled to an annual holiday on pay during—
- a period of parental leave under this Act; or
- a period of preference in obtaining employment; or
- the period of 12 months commencing with the date on which the employee returns to work after a period of parental leave under this Act or a period of preference in obtaining employment,—
Now NZPPA has reviewed a range of things such as MBIE’s training material that NZPPA spent 18 months via an official information request to get (from 2017) and speaking to a range of payroll subject matter experts on their view. Along with a payroll provider that also got a legal opinion based on what the MBIE document states that our original view is the correct approach to how this should be applied in payroll.
To see the MBIE document click here
So, until we see case law or MBIE provides a Labour Inspectorate Position Statement NZPPA’s position will revert to what we presently held being:
- That entitlement earned while off on any period of parental leave and in the first 12 months on return from parental leave can only use AWE and not the greater of AWE and OWP.
NZPPA apologises for any misunderstanding this may have caused but we try to provide the latest up to date view on legislative interpretation. If we believe we got it wrong we front up!
You may ask what about MBIE why aren’t they involved? Well, NZPPA have stated this many times before MBIE should be the leaders but they are not, their focus is not being seen to have got it wrong. On their website they state the following which is so vague it is dangerous and it is little help for payroll on the issues I have covered in this post:
If the employee becomes entitled to annual holidays:
- during parental leave or
- in the next 12 months after their return from parental leave
Now if you look at the MBIE resource manual reference (NZPPA had to fight to get it!), it is much clearer on how this would be applied along with an example. This is what payroll needs to get this right. This level of detail should be on their website so this becomes a non-issue not hidden away!
Just one additional point as part of the Holidays Act review this area called the “parental leave override” has been stated as a form of discrimination against an employee that has taken parental leave and it will be removed from any new Holidays Act (one of the 22 recommendations made). It has been interesting to see that no mention of how employers will be protected from this change will be included in any new Holidays Act.
NZPPA supporting NZ payroll since 2007!