WHAT GIVING TEN DAYS SICK LEAVE MEANS FOR PAYROLL
Author: David Jenkins, NZPPA CEO
The government has introduced the Holidays (Increasing Sick Leave) Amendment Bill and has stated it will go through the full select committee process before becoming law later in 2021 (not 1 April 2021). This was one of their election promises.
So firstly, this is only a bill and is not yet law. A few things have to happen before it becomes law, and what’s in the bill could change as it goes through the select committee process. Bear in mind the government has the power to make this law now if it wanted to.
In this post, I want to cover what the bill says in its current form and how it will affect payroll.
For the purpose of this post, I am only talking about minimum entitlement for sick leave before the change and after. I am not talking about any additional entitlement that the employer may choose to provide to their employee as that is an agreed term and has nothing to do with this change.
During the election, there had been talk that the increase in sick leave would be based on the premise that as an employee earns sick leave (accrues), it becomes an entitlement that the employee can use (not waiting six months to get the entitlement, and 12 months thereafter). This is totally different from what the Act presently says as sick leave does not accrue (like the 8% value that happens with annual leave). To accrue and change to an ongoing entitlement would require a major change to software, so it’s good to see that this is not included in the bill.
Also, there is nothing in the bill about changing the concept of a day for sick leave included in the present Act and not part days (where an employee wants to take part of the day). So, the present situation still applies where an employee can take part of a day off as sick leave and lose a full day of entitlement.
So how will increasing sick leave to 10 days impact on payroll?
- The bill does not reset the past, meaning it does not give employees additional sick leave going back to past entitlement dates where the employee received sick leave. So, no extra work for payroll is required as it would have been a messy activity to try and apply.
- The bill is about changing from the next time the employee becomes entitled to sick leave, and instead of providing five days at that time, it will be ten days. All the dates and qualifying criteria for the employee used today will continue to be used in future.
- The bill does not increase the maximum amount of sick leave that can be retained, so the 20 days will still be the maximum under the Act.
What the change from five days to ten days sick leave means for payroll
If the employee already has sick leave entitlement earned, adding the ten days to the existing entitlement when the employee next becomes entitled is straightforward. Hopefully, the payroll system will be able to do this automatically without payroll having to do a manual activity. This would also include ensuring the employee does not end up with more than 20 days of sick leave entitlement from the existing entitlement and the additional ten days’ entitlement.
Suppose the payroll system does not automatically do this for you. In that case, it will be necessary for payroll to document the manual process to clearly show the employee’s existing entitlement. Then detail the new entitlement once earned from the next time the employee becomes entitled to sick leave or from their first time (if a new employee).
What happens if the employer already gives more than five days of sick leave?
Suppose an employer already gives more than the five days of minimum entitlement (by agreement) to the employee. In that case, payroll will need to check what the business wants to do regarding the increase in minimum entitlement.
- If the employee already gets ten days sick leave (five days minimum entitlement and five days by agreement) does the business want to add the additional entitlement to what the employee gets now, so ten days minimum entitlement and five days by agreement (15 days in total)? If yes, the key to this is to code them differently, so they are not all in the one bucket.
- If the employer does not want to increase to 15 days, the issue may happen because the extra five days already provided is by agreement. I doubt the employment agreement will have a clause covering an increase in the minimum sick leave entitlement; however, the employer can decide to decrease or remove it. It could mean the employer is now stuck with having to provide the full 15 days.
How does the increased entitlement impact on the timing of maximum entitlement for sick leave?
Current timeframe to get 20 days sick leave (with 5-day entitlement):
- 5 days (6 mths) + 5 days (12 mths) + 5 days (12 mths) + 5 days (12 mths) = 20 days
- Taking 42 months to get 20 days of sick leave entitlement
New timeframe to get 20 days sick leave (with 10-day entitlement):
- 10 days (6mths) + 10 days (12 mths) = 20 days
- Taking 18 months to get 20 days of sick leave entitlement
What do employees need to know from payroll?
The most important point an employee will want to know is the sick leave balance both before and after the change. So, once we know the final changes, consider how you will show this to the employee, such as running a special report from payroll for each employee.
The other main question will be about when the ten days may push an employee over the 20 days and why they have lost those additional days that went past the 20 days.
The business and payroll should also be prepared to see a group of employees who may use sick leave up before the next entitlement to get the maximum benefit from this paid leave type. Hopefully, only a small group of employees will see the change as a way to get more paid leave. Of course, proof of sickness can be used to confirm their situation.
In conclusion, this whole post is about a bill that still needs to go through the select committee and be passed into law. What’s in the bill now could be quite different when presented back to parliament in the future. But it is good for payroll to be proactive and always look forward to what potential changes could mean for the work we do in payroll.