Did You Know? The new Employment Leave Act
To help our clients learn about the new Employment Leave Act, in palatable, bite sized chunks that hopefully leaves you with the will to live, we are introducing this ‘Did You Know?’ series. We will be breaking down each section of the Act with practical, plain language explanations of what it means for you as an employer.
Let’s start with some of the fundamental changes around sick leave as there are possible cost implications for employers to consider. The first step is to understand some key classifications about work hours which are fundamental to the new Act.
- Did you know the new Act creates three different categories of working hours?
One of the most important concepts under the new Act is the distinction between:
- standard hours
- additional hours
- casual hours
The important practical distinction: standard hours generate leave; additional and casual hours generally generate a 12.5% payment instead.
Which category an employee’s hours fall into will affect how their leave entitlements are calculated.
- Standard hours: The hours an employee may be required to work under their employment agreement and must be paid for. These are the hours that annual and sick leave will accrue.
- Additional hours: Hours worked on top of the employee’s standard hours, where the employer makes an additional payment for those hours. These hours generally attract the 12.5% ‘Leave Compensation Payment’ rather than accruing annual and sick leave. This could have a significant cost implication.
- Casual hours: Hours worked where the employment arrangement does not require the employer to offer work or the employee to accept it. These hours also attract the 12.5% Leave Compensation Payment rather than accruing annual and sick leave. Again, this has a cost implication from the current 8% holiday pay that is paid to casual employees.
- Did you know sick leave will start accruing from day one?
Employees will no longer have to wait six months to qualify. Sick leave will accrue and be available to use from the beginning of employment at 0.0385 hours for every standard hour, up to the statutory cap.
Employees will be able to take their sick leave from the beginning of their employment. For employers with high staff turnover, or seasonal workforces that work for periods of less than 6 months, this could be quite a noticeable change. If you have employees who fall into this category, we suggest budgeting for a greater sick leave cost.
- Did you know sick leave will be measured in hours rather than days?
Sick leave moves from the familiar “10 days” model, irrespective of the number of days a week an employee works, to an hours-based entitlement that is in effect proportional to the hours worked each week.
The statutory maximum accumulated balance will be 160 hours.
This means the practical value of the entitlement may differ between employees depending on their working arrangements. Currently an employee working two days a week (16 hours), gets 10 days sick leave a year. That same employee under the new Act would get 32 hours of sick leave in a year, the equivalent of 4 days.
- Did you know taking two hours off sick may mean using only two hours of sick leave?
Because sick leave is hours-based, it can be taken against the hours the employee would otherwise have worked.
This is a significant departure from the current system and should provide considerably greater flexibility for short appointments or partial-day absences.
- Did you know overtime will not generate annual or sick leave?
Annual and sick leave will accrue against an employee’s standard hours. Additional hours (overtime) will be dealt with differently.
This is one reason employers should start looking closely at Employment Agreements and hours of work. The new system introduces a 12.5% leave compensation payment (LCP) for qualifying additional hours rather than employees accruing annual and sick leave against those hours.
That could produce some interesting reactions, particularly from employees who regularly work more than their contracted minimum hours
Action needs to start now
The distinction between standard, additional and casual hours means the description of an employee’s working hours in their employment agreement can directly affect leave treatment.
Employers should be preparing to update and test systems, agreements and policies before implementation.
This is not just a payroll project. It is an Employment Agreement project, a work hours structure project, a budgeting implications project and a change management project that will require educating your managers, team leaders and employees as well. There is a two year lead in period for a reason – you will need that time to smoothly introduce the changes.