Date: 20 Apr 2021

Author: George Journeaux & Neil Gardner

New Zealand legislation ensures that full-time, part-time, and casual employees have five paid days of sick leave per year.

Your employees can use their sick leave to either care for themselves or their dependents (for example, a child, partner, spouse, or parent) in the case of illness or injury. So, if they can't work from home, they are still financially supported.

First, the (very important) small print

There are some complex terms and conditions that come with the entitlement to sick leave. It's essential that you not only understand the T&Cs, but accurately capture the data needed to ensure sick leave is correctly allocated.

To be eligible for paid sick leave, your employee:

1. Must have worked for you continuously for six months (26 weeks), or,

2. They must have worked for you for six months for an average minimum of 10 hours a week.

How is continuous defined under the Holidays Act 2003? Well, to maintain the 'continuous' status, an employee must work for you for at least one hour per week or 40 hours over a month.

laughing colleagues

When does an employee start to accumulate sick leave?

Sick leave doesn't just kick in immediately when an employee joins your company. It's not until they meet the 'continuous' or 'minimum' conditions that they are entitled to accumulate and be paid for five days of sick leave per annum.

But if an employee has a year where they don't meet the criteria (for example, if they take an unpaid leave of absence for a month), they won't accumulate any additional days while away. However, neither will they lose any unused sick leave as it can be carried over to their return. And as soon as your employee meets the criteria again, they re-qualify for sick leave.

A further complexity is that employees aren't allocated sick leave on a pro-rata basis. Even if someone only works for you 10 hours a week, they still get five days paid sick leave a year.

also, unused sick leave balances can carry over from one year to the next to result in a maximum balance of 20 days

When do you pay an employee for sick leave?

You only pay sick leave if your employee is unwell on a day they would normally work.

So, if an employee works for you from Monday-Friday, but are ill on Saturday, they won't qualify for sick pay. Likewise, if they are rostered to work Monday to Thursday but are unwell on a Friday, they're not entitled to sick pay for that day either as it wasn't a scheduled workday.

But if your employee is ill on a day they would typically work (or are scheduled to work), they must be paid for that day at their regular rate (also called relevant daily pay (RDP)).

So, if Sam always does a four-hour shift on Saturday, but he's ill, then he should be paid for those four hours as per usual. And if Sally works 9-5, Monday to Friday, but is sick on Tuesday and Wednesday, she must be paid her normal rate for two days.

That's pretty straightforward. But when calculating relevant daily pay, you also need to factor in any overtime an employee would have worked if they had been well. For example, perhaps you asked Sally to work longer hours for that week, or to work through part of her lunch break to cover for someone else, then she should be paid for those extra hours regardless of her formal contract.

When an employee works continuously for you but doesn't do a traditional 9-5 or Monday-Friday workday, you must still pay them if they are ill on the day they were rostered to work for you.

Note: You cannot choose to use either RDP or ADP. You should use RDP if this can be calculated. You can use ADP if its not possible or practicable to determine the RDP or if the employee’s daily pay varies during the pay period when the leave falls – you cannot just default to pay all staff ADP.

You must also pay an employee their sick leave in their usual pay cycle – not retrospectively.

Woman Concerned and Wearing Pink Top

What about a part sick day? How does that work?

According to the Holidays Act 2003, sick leave entitlement only exists as whole days. There's no such thing as a partial sick day.

Therefore, if one of your 9-5 employees goes home ill at midday, they still use up a full day's sick leave entitlement. The same applies if they leave at 4 pm, just an hour short of completing a full day of work.

However, most employers agree that this is not a great way to keep employees on-side. Most will decide to describe the leave entitlement in such terms as a half-day sick leave or even an hour's sick leave. If this is your approach, then payment for a half-day sick leave is 50% of the employee's relevant daily pay or average daily pay.

Can you negotiate to give an employee less than five sick days?

The answer is no. Under the Holidays Act 2003, you can't reduce an employee's entitlement to less than the five paid days of sick leave provisioned for by New Zealand law.

What if an employee runs out of sick leave?

If one of your employees needs more paid sick leave to recover from injury or illness, they can ask you to grant sick leave in advance or request unpaid leave. Whether or not you do this is entirely at your discretion.

Note: you can give an employee additional days. For example, you may agree not to cap how many sick days they can accumulate (bearing in mind that they can already stockpile 20 days sick leave under the law). Or instead of five sick days a year, you can, for instance, agree to 10.

A woman sitting on the floor with a laptop and a cup of tea

And what if an employee falls ill while on annual leave?

If an employee falls ill before they start their scheduled holiday, they can convert those days from holiday leave to sick leave. But if this happens while they're already on vacation, they can only alter their holiday leave to sick leave with your agreement.

You are also legally entitled to ask an employee for proof of illness before changing their holiday leave to sick leave.

What about unused sick leave?

Under the Holidays Act 2003, if one of your employees has any unused sick leave at the end of 12 months, it can be added to their next year's entitlement, up to a maximum of 20 days. This is unless you've agreed otherwise in their employment agreement or as part of your workplace policy.

When an employee leaves your employ, they can't cash in or be paid for any unused sick days unless stated in their employment agreement.

Are employees' doctor and dentist appointments covered by sick leave?

No, they're not. You don't have to give an employee time off work for health-related appointments unless stated in their employment agreement. If not, it's normally a matter of negotiation between you and your employee.

And if the answer is 'no', your employee will need to schedule these appointments outside of their work hours, or use a sick leave day to cover their absence.

Can you ask your employee to provide proof of illness?

Yes, you can. If your employee has been sick for three or more consecutive days, you can request proof. This proof is generally in the form of a medical certificate from a doctor confirming that your employee is unfit to work.

If you request proof that an employee is unwell within the three consecutive day period (including an otherwise working day, see below), you must pay the doctor's consultation fee. You must also ask for proof as soon as possible.

To note: You can't specify which doctor or medical practice your employee needs to attend.

Sick pay and the otherwise working day

An ‘otherwise working day’ is a day your employee would usually work if it weren't a holiday.

For example, if they are employed or normally rostered to work from Monday to Friday, and a public holiday falls on a Friday, you are legally required to pay them for that day. Sick pay works the same way.

As an example, let's take Good Friday. If an employee falls ill or is unable to work from Wednesday through to and including Friday, you must pay them sick leave for the Friday, even though it was a public holiday.

What about needing time off for an accident that ACC covers?

If one of your employees has an accident or injury covered by ACC (Accident Compensation Corporation), the rules change somewhat. But first, bear in mind that there are two kinds of accidents – work-related and non-work-related – and that ACC payment relies on the corporation accepting your employee's claim and establishing their eligibility for weekly compensation.

If your employee is paid weekly, you can’t subtract sick or annual leave days due to an ACC-covered accident or injury. If ACC pays your employee weekly compensation (at the rate of 80% of their regular pay), you are not required to contribute.

However, if your employee needs more than a working week to recuperate, then you can agree to top their ACC payment up from 80% to 100% by using up one of their sick days for every five days they are off work.

So, if Jim cannot work for three weeks but is covered by ACC, he can use two of his sick days to top up his take-home pay from 80% to 100% for the last two weeks.

If an employee's accident is non-work-related, and ACC decline to pay for the first week, then your employee can use their accumulated sick leave or annual leave entitlement to cover that period. But if the accident or injury is work-related and not covered by ACC for the first week, you must pay your employee as usual.

Summary

Due to the number of what-if variables, sick pay entitlements can be complex to understand and manage without integration between HR and payroll applications. Accuracy and complete knowledge of each employee's employment agreement is critical to correctly calculating and paying their sick leave entitlement.

Guide: Payroll compliance and the 2003 Holidays Act

A guide for Payroll and HR Managers to understand the complexities and interplay between The Holidays Act (2003) and a given payroll system and its configurations

Download now!

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