Holidays Act 2003 non-compliance: Red flags in the aged care sector

Liam Rawlings
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The Holidays Act 2003 is one of the most difficult pieces of legislation for Kiwi businesses to comply with. In fact, it is so tricky, that one of the first major entities to be caught out for non-compliance was MBIE – the regulator in charge of Holidays Act compliance.

This complexity has seen the Act continue to be in the news over the past few years for all the wrong reasons; three of the biggest stories to hit the headlines include:

  • The Auditor-General has estimated a $2.1 billion dollar holiday pay liability for the Government
  • McDonalds has been remediating its holiday pay non-compliance since 2019
  • The former District Health Boards have become a “$1 billion nightmare” of Holidays Act non-compliance

But the damage isn’t limited to the large end of town either – in fact, we are seeing the Labour Inspectorate pursue small to medium sized enterprises with greater frequency and more rigour, meaning compliance with the Act is essential for businesses of all sizes. 

What drives non-compliance in the aged care and retirement villages (RV) sector?

The holiday pay calculation is straight-forward for organisations where team members consistently work 9-to-5, especially when they don’t have allowances, commissions, or bonuses. Underpayments in those situations are unlikely or immaterial. But this is where the simplicity stops.

Where employee work patterns vary - as is the case throughout the aged care and RV sectors - the calculation becomes harder, and non-compliance is much more likely.

Support staff often have variable work patterns, including work on weekends and public holidays, as well as complex remuneration structures that include a variety of allowances. The problem doesn’t end there though – bonuses are often common for senior leaders, and this can also contribute to potential non-compliance.

Casual staff arrangements are common and we have started to see more pressure from the Labour Inspectorate on correct determination of employee entitlements (casual or otherwise). It is vital operators get these classifications correct to ensure compliance with the Act.

These are just a few examples of the specific issues that apply to the sector, but there are almost certainly many other drivers of non-compliance that could apply to operators depending on their payroll system setup and internal payroll processes.

Common red flags to look out for

While we can’t provide an exhaustive list of what causes non-compliance, here are some of the more common red flags to look for, which might indicate you are inadvertently non-compliant with the requirements set out in the Act.

  1. Recording leave balances in hourly or daily units: The Holidays Act defines leave entitlement in weeks, making it difficult to remain compliant when recording leave in hours or days. This is particularly true when employee work patterns change.
  2. Complex or variable remuneration structures: The more pay components employees have, the more likely it is that there is non-compliance. Many allowances and bonuses that should be included in gross earnings calculations often aren’t. Examples of these include payments such as allowances or overtime rates that kick in when an employee works more than fifty hours, or daily allowances for long 12 hour shifts.
  3. Variable work patterns: These often result in payroll systems inaccurately calculating an employee’s work pattern at any given time. This is a significant driver of non-compliance.
  4. Weekend shifts and working public holidays: Many companies struggle to accurately determine statutory holiday and alternate day entitlements.
  5. Incorrect identification of casual employees: Some companies fail to identify when their employees should no longer be classified as “casual”, meaning they aren’t awarded the annual leave they are entitled to.

“But I have a compliant payroll system!”

We often hear from clients that thought they were compliant with the law because their payroll provider said they were. Sadly though, using a major system or outsourcing the payroll function entirely does not necessarily guarantee compliance. As mentioned at the beginning of this article, even some of our largest organisations aren’t immune to slip-ups that snowball into very expensive remediations.

So, what does this all mean for me?

Although changes to the Act are in draft, they will not immediately guarantee compliance for those with non-compliant payroll systems, nor remove the requirement to address historic non-compliance. To ensure current and future compliance with the law, it is vital that you take a proactive approach in dealing with any possible holiday pay issues. This can limit the extent of any potential financial or reputational fallout.