Business smarts TAX AND FINANCE
SICK LEAVE CHANGES T
Should you review your charge out rate as a result of the new sick leave provisions? Brett Crombie has some advice.
rade businesses could be forgiven for feeling under fire from legislative changes lately. The additional public holiday to recognise Matariki, the increased price of utes and vans due to the Clean Car Programme, and the increase in sick leave entitlements are all likely to add costs to trade businesses in the short to medium term. This article focuses on the increase in sick leave entitlements and how trade businesses could go about adjusting their charge-out rate to mitigate the impact.
The legislation In May 2021, the Holidays (Increasing Sick Leave) Amendment Bill was passed into law. The Bill means that from 24 July 2021, employees are entitled to a minimum of 10 days of sick leave per year, up from the current 5 days per year.
from a conservative costing and budgeting point of view it is wise to assume they will. The increased leave entitlement means there are now fewer chargeable hours per employee, per year. Therefore, to maintain the same level of annual revenue, the charge out rate would need to increase. The following is one model which could be used to help determine how much of an increase is needed. Several assumptions are made for illustrative purposes, but these can be adjusted to suit your business.
Weeks of work
64
nzplumber
Chargeable hours per year per employee
The model assumes an hourly charge out rate to clients of $90 per hour. It also assumes an average of 30 chargeable hours per employee per week, which is 75% of a standard 40-hour week. We can now work out the annual revenue per employee comparing five days sick leave with 10 days sick leave. The table below makes further assumptions around annual leave and public holidays which may vary between businesses but serve to illustrate.
Charge out rate
Annual revenue
45 weeks of work (20 days annual leave, 10 public holidays and 5 days sick leave) 45
30
1,350
$90
$121,500
44 weeks of work (20 days annual leave, 10 public holidays and 10 days sick leave)
Impact on trade businesses It remains to be seen whether the increased entitlement will in fact result in employees taking up their full 10 days per year, but
Chargeable hours per week
Costing model
44
30
1,320
$90
$118,800
