Holiday and sick leave entitlements of casual and part-time employees
In this article, we will address the following questions:
- I am preparing an employment agreement for a permanent part-time employee. We want to pay out their holiday pay on a “pay as you go” basis at 8% — is this OK?
- This part-timer will work two days per week, so how many sick days are they entitled to? If for whatever reason they have to work an extra day now and then are they entitled to extra sick leave?
- What are the answers to the above questions in terms of a casual employee, too?
1. Part Time Employees
“Pay as you go” annual holiday pay
An employer is not entitled to pay a permanent part-time employee holiday pay on a pay as you go basis. You must allow this employee four weeks’ paid holidays once the employee has worked for 12 months. The holidays must be calculated and paid as normal.
Section 28 of the Holidays Act 2003 (the Act) allows certain employees to be paid their annual holidays on a pay as you go basis. Only two types of employees can receive annual holiday pay in this manner:
- An employee employed for a fixed term of less than 12 months.
- An employee who works for an employer on a basis that is so intermittent or irregular that it is impracticable for the employer to provide the employee with four weeks’ annual holidays
Section 28(4) makes it clear that an employer who fails to meet these requirements and who pays an employee holiday pay on a pay as you go basis is barred from arguing that it has already paid holiday pay to the employee. The employer could be required to pay annual holiday pay again. In Harding v V & A Keefe Ltd ERA CA48A/08, 10 October 2008, the Authority ordered an employer who had already paid an employee for annual holidays on a pay as you go basis to pay the employee’s annual holiday pay again in a lump sum because the employee did not fall within the exceptions to section 28 of the Act, so there was no legal basis for the arrangement.
2. Sick leave
Part-time employees have the same sick leave entitlements as full-time employees. They are entitled five days’ sick leave after six months’ continuous employment. Sick leave accumulates if not used (section 66).
Section 63 of the Act sets out when employees will become entitled to sick and bereavement leave. In order to qualify, an employee must have completed:
- six months’ current continuous employment, or
- a period of six months in which the employee has averaged 10 hours of work a week and has worked at least one hour in every week, or 40 hours in every month, during the period.
Once an employee has qualified, he or she continues to be entitled to sick and bereavement leave as long as the above criteria continue to be met. A new entitlement is gained every 12 months, starting at the end of the six-month qualifying period. Thus, the first entitlement is earned at six months, the next entitlement at 18 months, and so on.
Section 65 sets out the qualification criteria for an employee to become entitled to sick leave. Sick leave may be taken if the employee, the employee’s spouse or partner, or a person who depends on the employee for care, is sick or injured.
It will make no difference to the employee’s entitlement to sick leave if for whatever reason the employee had to work an extra day now and then, but it might affect the rate of pay.
Note, however, that an employee is only entitled to be paid sick leave if the leave falls on what would normally be a working day (section 71(1)). When an employee works an extra day, the employee will only be entitled to be paid for sick leave taken on the extra day if it is clear that that day was going to be a normal working day for the employee. Section 12(3) lists factors that are to be taken into account in assessing whether a day would otherwise be a working day for the employee. The factors are:
- the terms of the employment agreement
- the employee’s work patterns
- whether the employee works only when work is available
- the employer’s rosters or other similar systems
- the reasonable expectations of the parties that the employee would work on the day concerned, and
- whether, if the day had not been a public holiday, alternative holiday, or day of sick or bereavement leave, the employee would have worked on the day in question.
If the employee had been rostered to work on a particular day or had agreed to work that day and had then become sick and unable to work, the employee would be entitled to sick leave for that day.
Under section 71(1), payment for each day of sick leave is on the basis of the employee’s relevant daily pay or, depending on the circumstances, average daily pay. Relevant daily pay is the normal measure, but an employer may use an employee’s average daily pay for the purposes of the calculation if it is not possible or practicable to determine an employee’s relevant daily pay, or the employee’s daily pay varies within the pay period when the holiday or leave falls (section 9A(1)(a) and (b)). When calculating relevant daily pay, the focus is on the particular day concerned and the remuneration the employee would have received if he or she had worked.
Average daily pay is defined in section 5 of the Act. To calculate average daily pay, the employee’s gross earnings for the 52 calendar weeks before the end of the pay period immediately before the calculation is made are divided by the number of whole or part days during which the employee earned the gross earnings. The divisor days include any day on which the employee was on a paid holiday or paid leave, but do not include any other day on which the employee did not work. If the employee has worked on a public holiday, the employee’s gross earnings do not include the extra payment for working on a public holiday that is provided under section 50(1)(a).
3. Casual Employees
A true casual employee is an employee who is hired for short periods of time usually to do specific work. Such a worker has no regular work pattern or any expectation of ongoing employment. The employment of a casual employee terminates at the end of each engagement. It is possible (an actually quite common) for a worker who is initially casual to drift into the status of permanent part-time worker. This can happen if the employment becomes regular and the employee has an expectation of ongoing employment and the employer expects the employee to be available on a regular basis. Once the employee has drifted into a permanent status, his or her employment can be terminated only for good substantive reason, and after following a fair and reasonable procedure, the employee will have all the rights of a permanent part-time employee and entitlements under the Act, regardless of whether permanent employment was intended or not – and with or without an updated employment agreement in place.
Casual employees are not entitled to time off for annual leave but they are entitled to a payment of 8% on top of their gross earnings. Casual employees will normally not be entitled to sick leave, however they may qualify in some cases (see “Sick Leave” below).
Casual employees can be paid holiday pay on a pay as you go basis. As noted above, holiday pay can be regularly paid with an employee’s pay when the employee works for an employer on a basis that is so intermittent or irregular that it is impracticable for the employer to provide the employee with four weeks’ annual holidays (section 28(1)(a)(ii)). In this situation, the employee must have agreed to receive holiday pay as part of his or her regular pay in his or her employment agreement. The rate of holiday pay must not be less than 8% of gross earnings, and must be paid as an identifiable component of the employee’s pay. Section 28(4) makes it clear that an employer who fails to meet these requirements is barred from arguing that it has already paid holiday pay to the employee.
The following clause could be included in a casual employment agreement:
The employee agrees in terms of the Holidays Act 2003, section 28(1)(a)(ii), because the employee’s work is of a casual nature and is so intermittent and irregular that it is impracticable for the employer to provide the employee with four weeks’ annual holidays, that the employee’s annual holiday pay (being 8% of the employee’s gross earnings in the pay period) can be regularly paid with the employee’s pay.
It is very unlikely that a true casual employee will be entitled to sick leave because the employee will not have fulfilled the requirements of section 63 of the Act. He or she will normally have not completed:
- six months’ current continuous employment, or
- a period of six months in which the employee averaged 10 hours of work a week and worked at least one hour in every week, or 40 hours in every month, during the period.
It is possible for a casual employee to drift into the status of permanent part-timer and become entitled to paid sick and bereavement leave by meeting the requirements of section 63(1)(b). To meet the requirements, the employee would have to work, for six months, an average of 10 hours per week and no less than one hour per week or no less than 40 hours in every month in that period. Employers should take precautions to ensure that casual employees do not drift into a new status and become entitled to sick or bereavement leave.