Home

Author: David Jenkins, NZPPA CEO

Please note:  For this post, I am talking about sick leave, but the criteria under Section 63 of the Holidays Act also apply to bereavement leave, and Section 72D (1) applies to family violence leave.

In this post, I want to discuss how an employee that does not meet the requirements of continuous employment can still get sick leave entitlement and how payroll needs, in some situations, to apply a moving assessment (work test) to ascertain if the employee has met the requirement to get sick leave entitlement. 

I want to start with a few quick points: The Holidays Act provides sick leave entitlement once the employee has met the time requirement.  There is nothing in the Act that accrues sick leave, but some payroll systems are doing this and will show it on an employee’s payslip.  This is totally wrong and sends the wrong message on what the employee has a right to take.  The employer can provide sick leave in advance, but that is the employer’s choice, not the payroll providers or their system.  Also, always keep in mind that the Act states sick leave in days and not part days.  So, if the employee only wanted to take a half day sick, they could lose a full day of their sick leave.  Again, it is totally up to the employer, and most allow the employee to take sick leave in less than a day without taking a full day of entitlement from the employee.

Employee meets six months current continuous employment

There are two ways an employee can meet the criteria to get sick leave entitlement under the Holidays Act.  This is defined under Section 63(1).  I will briefly mention Section 63(1)(a) as this is the typical application of how an employee would get sick leave if the employee has completed six months of continuous employment with the employer. 

This is straightforward and easy to apply if the employee has worked a period of continuous employment (of six months) that is current.  This would typically be from when the employee started with an employer, but it could mean the employee did not meet the requirements of continuous employment, but later in their employment, they do (payroll needs to check).  I get asked from time to time if the criteria are based on employment with one employer or if the employee works for different employers, is it across all employment?  The easy answer is just for the one employer as the criteria are based on the period with their employer based on the employment agreement with that one employer.

For payroll, the employee’s employment agreement should be the key document to determine if the employee’s employment meets the criteria of continuous employment over six months.  Follow that up with the reports available in payroll, and this should be straightforward to confirm.

Employee does not meet six months current continuous employment

Section 63(1)(b) provides a work test criterion for employees that do not clearly meet the continuous employment requirement under the previous section.  The work test identifies what these employees need to meet to get sick leave entitlement, starting with the timeframe: “the employee has, over a period of six months, worked for the employer”.  The key to this section is to understand the “and” and the “or” included in the work test sub-clauses in what the employee needs to meet to get sick leave, which is at least an average of ten hours a week during that period, AND no less than one hour in every week during that period OR no less than 40 hours in every month during that period.  In plain language, an employee does not need to work every week because it states an average and then an hour a week or 40 hours a month.

So how to apply this in payroll?

And the fun begins…

Because Section 63(1)(b) states over a period of six months, this type of employee could meet the six months criterion at any time to receive their initial or ongoing entitlement to sick leave. 

For example:

An employee starts, and over the first six months, they do not meet the criteria of current continuous employment s63(1)(a) or the three options under s63(1)(b).  However, in another three months (nine months from starting), the employee requests sick leave, and another check is undertaken to confirm if they are now eligible for sick leave entitlement.  By applying the work test under s63(1)(b) to look back from the nine-month mark to six months ago, the employee could now meet the criteria to get sick leave entitlement of ten days.

What this means for payroll is as soon as the employee meets the six-month work test, they get their entitlement of ten days of sick leave, and this then means from that point, the next assessment will be in 12 months.  So, it won’t be the standard assessment timeframe that would be used for an employee that meets the six months of continuous employment and then 12 months after that.  The assessment at the 12 months mark will again be the six months of continuous employment, or the work test will be applied if that does not fit.  It could mean the employee gets another ten days of sick leave entitlement (the maximum is 20 days) or does not meet the continuous employment criteria or the work test to get another allocation of sick leave entitlement.  So, for this type of employee, their entitlement date for sick leave and the reassessment 12 months later won’t follow a consistent timeframe for payroll but is based on the result from the work test taken at the time.  This is why the work test should be seen as a moving assessment.

It may also be useful to see if a payroll report could be created that includes the employees that need the work test applied to see if the work test has been satisfied and the employee is now eligible for sick leave entitlement at any time instead of trying to work it out in an Excel spreadsheet.  This will save a lot of time and hassle for payroll if you have a payroll system with an ad hoc report writer and database structure that can be used to achieve this.

In conclusion, the employee can gain sick leave in two ways, and payroll needs to fully understand both.  If employees need the work test applied, then payroll must know how and when it can be used and that it won’t be a standard timeframe but more of a moving assessment. 

Note: This post was provided with permission from the New Zealand Payroll Practitioner Association (NZPPA)