All workers to enjoy four weeks annual leave

Prime Minister Helen Clark today announced that all workers will enjoy at least four weeks leave, taking effect in 2007, enabling families to spend more time together, and workers to have more rest and recreation.

The Prime Minister told the Labour Party conference in Christchurch this afternoon that the Labour-Progressive government is to promote amendments to the Holidays Act to increase the minimum annual leave entitlement from three to four weeks, effective from 1 April 2007.

Amendments to the Holidays Act are currently before the Transport and Industrial Relations Select Committee, which is due to be reported back to Parliament by 1 December.

“We believe that four weeks annual leave will be good for New Zealand. By giving 3½ years advance notice of the change, employers, including the government, will have time to plan for the change,” Helen Clark said.

“The extra week is a particular boost for working parents, who will be able to spend more time with their families. This is especially important these days as many people are working longer hours than in the past.

“There is the issue of equity between employees with many, particularly those in white collar managerial positions, already enjoying four weeks leave through their employment agreements, while most manual workers currently miss out.

“Four weeks annual leave is also important if New Zealand is to compete internationally in attracting and retaining skilled people.

“The move will put us on par with many of our major trading partners, like Australia and the United Kingdom, although we will still lag behind many European countries. Australia has had four weeks annual holidays for 30 years, and the United Kingdom introduced a further week in April 1999.

“In the United Kingdom, data covering the period when an increase from three to four weeks leave was introduced showed continued growth in output and a continued increase in productivity. Employment also continued to increase throughout the transition period.”

Labour Minister Margaret Wilson said compliance costs will be kept to a minimum by having the extra entitlement take effect on the 1 April date. The date dovetails with the tax year, which is when businesses normally update their pay roll systems.

“The option of phasing in the fourth week of annual leave was rejected because of the compliance costs associated with businesses having to change their pay roll systems several times.

“This is the latest in a series of initiatives supporting employees and their families since Labour came into government. We have increased the minimum wage, introduced paid parental leave, improved health and safety and accident compensation legislation, and brought in fairer labour laws with the Employment Relations Act.

“A key reason for raising the minimum annual leave entitlement is that life has become more hectic and people need adequate rest and time to spend with their families and in their communities,” Margaret Wilson said.

Four weeks annual leave: Q and A

What is changing?

All New Zealanders will get four weeks annual leave after 1 April 2007.

Employees qualify for the extra leave on the first anniversary of their employment after that date. If their annual leave is already paid with their regular wages (for example, casuals or seasonal workers), the annual leave component of their pay cheque will increase from 6 per cent to 8 per cent.

Why?

The Government wants to ensure high quality working lives for all New Zealanders. Four weeks annual leave provides social and economic benefits outweighing the associated costs.

It’s been 30 years since three weeks annual leave was introduced. People now work longer hours, often six days a week, if not more. They must have breaks so they have time and energy to invest in their families and communities.

Four weeks annual leave is about quality of life, fairness and raising minimum employment standards when the country can afford to. Standards promote certainty, stability and equity, encourage people to participate in work and provide a foundation for growth.

Who will be affected?

Roughly speaking, about half of all employees will now join those who already receive a minimum of four weeks leave.

As things are, the people most likely to receive the minimum entitlement of three weeks annual leave are those on low or average incomes. Managers, union members and civil servants are most likely to already have four weeks annual leave.

As a result of the change, the best estimate available is that about two of every three private sector employees will receive an extra week’s leave, and one in three civil servants.

How does New Zealand compare internationally?

New Zealand’s statutory minimum is below many other OECD countries, which mostly provide for four or five weeks. Including public holidays in the tally does not improve our standing. (See the attached table.)

This poor comparison is not helpful when New Zealand competes internationally in attracting and retaining skilled people, and four weeks annual leave puts us on a par with many major trading partners. Australia has had four weeks for 30 years, and the UK introduced a fourth week in April 1999.

Can New Zealand afford it?

Yes, the economy is doing well. Treasury and Department of Labour economists estimate the annual net cost to be about $350 million. To provide some context, the total private sector wage bill of $35 billion will increase by less than one per cent.

The net cost of $350 million takes into account a small increase in productivity, assumes that 75 per cent of employees who currently have four weeks holiday will be able to negotiate a fifth week in the future and that the increased annual leave entitlement will be taken into account during employment agreement negotiations.

Business New Zealand claims that employers will be out of pocket by an extra $1 billion per year, but the figure represents the addition of a week’s leave for all employees. It doesn’t take more complex dynamics into account, or the fact that many people already get four weeks annual leave. Independent economist Brian Easton also estimates the cost to be $350 million.

What are the economic benefits?

There were no negative effects on economic growth when the United Kingdom introduced four weeks leave in 1999 - productivity and employment both increased.

Many employers have long-recognised a link between holidays and increased productivity, and the costings above assume there will likely be a 10 per cent increase in productivity.

There is likely to be a reduction in absenteeism, sick leave and workplace accidents.

More holidays will be good for domestic tourism.

Why wait until 2007?

It has never been Labour’s policy to introduce an extra week in its second term of government because of the priority given to other initiatives benefiting employees and their families - the increased minimum wage, reviews of both paid parental leave and the Employment Relations Act, improvement of health and safety provisions, clarification of sick and bereavement leave entitlements, pay equity and work-life balance programmes.

Labour supported Matt Robson’s bill to a select committee so it could be debated and so the public could make submissions. There were 7,481 submissions on The Holidays (Four Weeks Annual Leave) Amendment Bill, and 7,413 of those were in favour of four weeks annual leave.

Some promoters of four weeks annual leave would like the law to take effect immediately, but the government is mindful that businesses need time to plan. The start date has been set at 2007 so businesses have ample time to prepare.

The compliance costs have been reduced by having an April 1 start date that dovetails with the beginning of the tax year. An option of phasing in four weeks annual leave was rejected because of the compliance costs associated with businesses having to change their payroll systems several times.

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