The Surprising Parental Leave Rule You Probably Don't Know About
This blog post and the accompanying white paper were coauthored with our friends at PaySauce, the leading payroll provider for small businesses in New Zealand.
You’d think going on parental leave would have nothing to do with your annual leave, right?
But going on parental leave can affect the value of your annual leave. This quirk is mainly known for being notoriously surprising to mothers when they take their much-needed first holiday after returning to work and find out their paycheck is much lower than usual.
We’ll explain how this happens in a moment, but even if you’ve heard about it, we’ve discovered that there’s more to it. Given the Holidays Act review that’s going on at Parliament, it’s timely to understand what it means for you.
We recently spoke with Stuff about this, so you may have seen this article: Stuff: The Parental Leave quirk that could catch you out.
In this piece, we want to focus on the bit that only got a very small mention at the bottom of the article - but perhaps raises the biggest question!
The Parental Leave ‘Override’ As You Might Know It
The law says that if an employee becomes entitled to annual leave during or within twelve months after parental leave, their annual leave pay is calculated based on their average weekly earnings in the 52 weeks before taking leave, with no comparison to their usual pay rate.
Because this includes unpaid time away from work on parental leave, the average weekly earnings can be much lower than what they’d normally get for a week’s work. For example, we had a new parent write in saying that when they took their first break, they got paid $6 an hour!
Uncovering Hidden Implications
People generally assume that parental leave override only applies to primary carers, more than 95% of whom in New Zealand are mums. However, if you look at how the law is written, it actually applies to anyone who takes parental leave to look after a new child.
The crux is the definition of “parental leave”. The law says that parental leave includes primary carer leave, extended leave and partner’s leave.
This means that if employers strictly apply the legislation, even someone who takes just one day of partner’s leave or extended leave would have their annual leave impacted for the following twelve months.
There are real-world scenarios where this matters. For example, an employee would be disadvantaged if:
They received a pay rise shortly after taking leave
They increased their working hours (either standard or on average)
They had a period of unpaid sick leave or a period of time on ACC
Where to from here?
While the uptake of partner’s leave is low (MBIE has it at 4%), and the impact may seem minimal, this quirk highlights how complex the law is for employers to adhere to and employees to understand.
Brooke van Velden, the Minister for Workplace Relations and Safety, recently announced that this issue is back on the table as part of a broader review of the Holidays Act. We hope the government simplifies the law in a way that’s fair for employers and employees.
You can read our white paper detailing this quirk in detail.
Now for the important legal part: The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 17 September 2024.
Stephanie Pow
Founder and CEO, Crayon
Jess McLean
Chief People Officer, PaySauce