The ins and outs of sick leave entitlement
9th December, 2015
Sick leave entitlements can be difficult to understand. Just like holiday pay, people often have their own perception of what it is or should be.
Sick pay is made up of two components: the entitlement and the payment.
The entitlement is a minimum of five days per year and the employee can accrue up to a maximum of four years’ entitlement, for example: 5 days x 4 years = 20 days (more if the employee’s agreement states a higher entitlement and maximum balance). The employee would become entitled to sick leave after six months of continuous service and then every 12 months thereafter.
The payment should be the employee’s Relevant Daily Pay (RDP) for the day (what the employee would have received on that day in question including any overtime and incentives that would have been received).
Let’s look more closely at each of these areas:
The Entitlement – who gets it?
Sometimes employers get confused about sick leave allowances. I quite often hear sick leave referred to as “one week” and employees will be set up with only one or two days sick leave per year because that is what the employee works per week.
The legislation defines sick leave as a minimum of five days. All employees that qualify for sick leave would get this minimum number of days – even part-timers (there are exceptions to this). Generally most permanent and fixed-term employees would qualify for sick leave once they have completed six months of continuous service.
Casuals can also become entitled to sick leave if they meet certain criteria. To know if your casual employee is entitled, there is an hours test on the Ministry of Business and Innovations website that helps you determine this. Review this test every year for all your casual staff.
Also regularly review the entitlements for everyone in your company. Contracts can change throughout the year due to lifestyle changes and demands and this can impact on their entitlements like sick leave.
Days or hours?
Most payroll systems allow you to set up your sick leave in days or hours for entitlement. Deciding which one to use depends on the ease of processing this leave correctly.
First take into account the industry you are in. Are there lots of variations to workers’ hours in your payroll? Generally if your employees work standard hours per day then you could use Hours or Days to manage this – just make sure they have five days available.
Example: An employee has a 40-hour entitlement based on 5 x 8-hour days and he takes sick leave on a day he is rostered for 10 hours.
He needs to be paid based on a 10-hour day, however you cannot take 10 hours from their entitlement if it means that they will have fewer than four full sick leave days remaining.
If you have workers doing different hours on different shifts and these change all the time, then days is the preferred option. You would pay the leave hours on that day based on RDP and reduce the entitlement by one day, which would adhere to the legislative requirement of minimum five days per year. You can also give employees a fraction of a day for sick leave if you wish, but employers can take one full day’s sick leave from the employee for any part of that day being taken as sick.
What to pay?
The payment for sick leave is RDP. This is usually easy, but a little more complex in some cases.
Example 1: An employee works eight hours on Monday and Tuesday, and four hours on Wednesday.
If the employee took all three days off, that would be three days sick leave reduced and paid 20 hours for that time. Wednesday is still officially one day sick, even though the employee works only four hours.
Example 2: An employee works an eight-hour day, but also gets commission regularly. If that employee takes a sick day he would get paid Average Daily Pay which includes his commission calculated into the payment.
Example 3: An employee works 12-hour night shift and gets night shift allowance. His sick pay would reflect those hours and also getting that allowance based on what he would have received on that day.
If the employee has variable hours all the time due to being casual then look back on the last four consecutive weeks to see average hours worked on that day, or pay the employee’s average daily pay. If you’re still not sure, contact the Ministry of Business and Innovation to confirm what should be paid.