Reducing your staff could affect your payroll, for the worse

Businesses across the world are adopting cost-cutting measures to manage the impacts of the ongoing COVID-19 pandemic. Hard-hit industries such as airlines are offering periods of unpaid leave to employees in response to the growing travel restrictions and resulting steep decline in tourism, while some companies are beginning to let their staff go.

If you find yourself in the unfortunate position of having to reduce your workforce to cope with the current business climate, you need to be assured that your payroll system can support your leave management priorities.

Although an employee is entitled to be paid sick leave if they are sick, or who needs to care for a spouse or dependent who is sick, there will be situations in which an employee cannot work because he or she may have been exposed to the risk of infection, without actually being unwell.

If you have employees that are unable to work because they can’t return from an overseas trip or are required to self-isolate, employers and employees need to come to an agreement in good faith when it comes to pay in this situation. This may involve discussing the possibility of:

• Taking sick leave (and anticipated sick leave) or paid special leave
• Taking paid annual leave (if entitlement is available) or taking annual leave in advance of entitlement
• Taking some form of unpaid leave, or
• A combination of all of these.

There is no general entitlement to unpaid leave under the Fair Work Act 2009 in Australia and under the Holidays Act 2003 in New Zealand; unpaid leave (that isn’t unpaid sick/carer’s leave or parental leave) is a matter of agreement between the employer and employee. 

In Australia, there is provision for two days unpaid carer’s leave for all employees (including casuals). This is to allow for an employee to care and support an immediate family or household member because of illness, injury or an unexpected emergency. Employees can only take this leave if they don’t have any paid personal or carer’s leave left. There is little law around extended periods of unpaid leave however, which means employers and employees must agree on whether this form of leave is required.

The New Zealand legislation provides additional requirements where a period of unpaid leave is greater than one week. In this situation:

• An employee’s anniversary date for entitlement to annual holidays moves out by the amount of unpaid leave taken (not including the first week). This means the employee becomes entitled to their annual holidays later each year from then on, or
• An employer and employee can agree that their anniversary date for annual holidays entitlement won’t change, but the employer must also reduce the divisor for calculating average weekly earnings for annual holidays by the number of weeks or part-weeks greater than one week during a period of unpaid leave.

If you are paying New Zealand employees, you need to ensure your payroll system has the functionality to enable you to meet your compliance obligations described above. You will also need to be able to explain to employees if there will be any impact on their anniversary date for annual holidays and to ensure any agreement reached is recorded in writing to avoid any misunderstandings.

Whether you’re in Australia or New Zealand, there is no ‘one-size-fits-all’ approach for every workplace. What is clear however is that all employers need to ensure they consult and communicate clearly with their employees about their organisation’s response to COVID-19 and their approach to leave. Keeping employees updated on any policy or decisions is vital, and should be a priority especially during this time of change and uncertainty.