Please note: There are many variations between parental leave and the Holidays Act and NZPPA will provide a series of posts on this in the future.
There is a lot of confusion on this area as NZPPA is being asked if and when parental leave and annual holidays can be taken at the same time.
There are two basic aspects to this:
- the parental leave payment provided by IRD
- annual holidays provided by the employer.
NZPPA’s position is that you should not be taking two leave types at the same time. However, with the changes to parental leave that happened last year this area has become messy for payroll.
- The employee can receive up to a maximum of 40 hours in total under the new keeping in touch days that can see them come back to work and be paid by the employer while also getting the parental leave payment from IRD.
- An employee can be on 52 weeks of extended leave and return to work and while back take annual holidays, work or take a public holiday and then leave the workplace to go back on another period of extended leave.
Please note: both of the above need to be agreed to by the employer and undertaken before the employee returns to work or the child turns 1. There are other timeframes in regard to keeping in touch days to consider as well.
The following extract from MBIE’s website states that the employee can be on parental and annual holidays at the same time if the employer agrees.
[MBIE] ANNUAL HOLIDAYS (ANNUAL LEAVE)
- Sometimes employees want to take annual holidays before the arrival of their child. If an employee is on annual holidays and gives birth to or becomes the primary carer of their child, the law doesn’t stop them from getting parental leave payments for the same period of time as they receive annual holidays payments.
- If an employee wants to overlap their parental leave (and parental leave payments) with a period of annual holidays (and annual holidays payments), they should discuss this with their employer. Employees can only take annual holidays with the employer’s agreement. The employer and employee should consider whether the employee should keep the benefit of having time off for annual holidays after the parental leave has finished.
- There will be tax implications for receiving the two types of income (pay for annual holidays and parental leave payments) at the same time. Customers will need to use a secondary tax code for the lower of the payments to make sure they pay the right amount of tax.
- If an employee doesn’t want to receive two types of income at the same time, they can apply for the parental leave payments later (for example, at the end of the period of annual holidays, or a later time, provided it’s before 12 months have passed since the child’s arrival). The payments will still be backdated to the start of the parental leave payment period, but would not be subject to secondary tax.
If you are going to do this, only allow an employee to take annual holiday entitlement that has been earned and not accrued. If you allow an employee to take accrual you are not actually doing an 8% calculation, but are, in fact, providing annual holidays in advance (Section 22 of the Holidays Act).
If the employee’s entitlement date for annual holiday happens while they are on parental leave, the value for this leave on their return can be at a reduced value as only AWE can be used (not OWP). If annual holidays are paid in advance, it will mean you will be using the greater of AWE and OWP when the leave could only be based on AWE in the future (costing the business more than is required under the act).
NZPPA’s view is that you should work with the employee to take annual holiday entitlement (if they wish) prior to parental leave and then once that has been taken start parental leave.
What about tax if the employee is getting parental leave and annual holiday payments at the same time? Here is a reference from IRD on this:
[IRD] IF YOU RECEIVE PPL PAYMENTS AND ANOTHER SOURCE OF INCOME AT THE SAME TIME
If you’re also receiving another source of income (such as annual leave payments or an employer top-up) you’ll need to use a secondary tax code for the lower payment amount. This will help you avoid a tax bill at the end of the year.
Another issue here is that many payroll systems have not caught up with the new requirements under the Parental Leave Act and still just provide one code that all parental leave is lumped into. Payroll needs all the leave types broken down so we can provide meaningful reports to our HR colleagues and management.
Now, of course, an employer can always do better than an act as a matter of agreement or as a result of the culture of the business, but for payroll it is always important to ensure minimum entitlements, or that a requirement by law has been met as it is this that can be challenged by employees or external agencies.
If you have any questions, please contact [email protected]
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