Holidays Act Taskforce – proposed process for calculating annual leave where hours are variable

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So far, initial views on the changes proposed by the Holidays Act Taskforce to the calculation of annual leave (AL) seem to be mixed. Some feel that the proposals will deliver much needed certainty for employers, while others feel that the Taskforce may have missed a golden opportunity to make the methodology as simple as possible.

One of the key issues the Taskforce considered was how to calculate and deduct an employee’s annual leave entitlement when their hours of work are variable. The current Act caters for employees working a regular pattern, but it is difficult to apply to those working variable hours. Part of the problem is that the entitlement to AL is in weeks -4. But to deal with employees working variable hours, many payroll systems accrue AL in hours.

The Taskforce grappled with this (hours versus weeks) but decided to stick with weeks as the fundamental unit. They propose a set methodology for calculating AL – a ‘stepped’ approach. The methodology still has an element of complexity to it because it requires the employer to calculate the days of leave in hours and then to convert that to a portion of a week, which is then deducted from an employee’s accrued entitlement.

The following 4 step approach is proposed:

Step 1

  • Identify the days the employee wishes to take as AL.

Step 2

  • Determine the hours that would have been worked on each day of leave.
  • If the number of hours the employee would have worked on a specific day is set out in the employment agreement (EA) or work roster, then use this.
  • If the hours are not clear from the EA or roster, then calculate the average daily hours the employee worked on that day in the previous 13 weeks. Do this for each day of leave.

Step 3

  • Determine what a ‘week’ is for the employee in hours.
  • If the hours of work are set out in the EA or work roster, then use this.
  • If the hours of work are not clear, then a week should be determined by the average number of hours worked per calendar week within the previous 13 weeks, or across the length of the shift cycle if there is a repeating shift pattern.

Step 4

  • Convert leave taken into a portion of a week, so divide the number of hours of leave to be taken by the number of hours in the week.
  • Deduct this from the employee’s accrued leave entitlement which is to be maintained in weeks.

There is still some complexity to this approach, but at least it provides set steps that an employer can work through. The Taskforce considered submissions from stakeholders supporting hours as the applicable unit, but felt hours would leave some employees worse off and so decided to stick with weeks. It will be interesting to see if submitters on the report’s conclusions (due by 31 March 2021) focus in on this question. Calculating AL in hours has the attraction of being a simple approach and easy to follow. There is still a way to go in the development of a Bill but the government has signalled that it accepts all of the Taskforce’s recommendations. So we perhaps have a good glimpse into what the new Bill will look like.     

Our employment team is available to help with any questions you have about the proposed annual leave changes or any of the other changes proposed in the report.


Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

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