One of the intentions of the Holidays Act 2003 is to make it easier to calculate employees’ holiday pay. Holiday pay is not just an employee’s pay while on annual leave – it can mean several different things. It is therefore important to understand what it is and how to correctly calculate holiday pay under the Holidays Act 2003.
Holiday pay is a term used by the Holidays Act 2003 to mean different things:
Holiday pay for an employee who is on annual leave must be the greater of their:
“Ordinary weekly pay” is what the employee receives for an ordinary working week.
Ordinary weekly pay:
If it’s not possible to determine an employee’s ordinary weekly pay, the pay must be calculated by using the following formula:
where:
‘a’ is the employee’s gross earnings for:
‘b’ is the total amount of productivity or incentive-based payments, plus payments for overtime that are not a regular part of the employee’s pay, plus any one-off or exceptional payments.
‘c’ is 4.
For example, a salesperson’s gross earnings for 4 weeks was $3,800. This included $1,200 for commission made on sales and $200 for extra hours worked while attending an exhibition.
Their ordinary weekly pay for the period is, therefore:
where:
‘a’ is their gross earnings, ie $3,800.
‘b’ is commission plus non-regular overtime, ie $1,200 + $200.
‘c’ is 4 calendar weeks.
“Average weekly earnings” are the employee’s gross earnings for the previous 12 months, divided by 52.
Gross earnings include paid leave, certain allowances, overtime, productivity, and incentive payments, such as commission, first-week compensation for a work-related injury, and the cash value of board or lodgings provided as part of the employee’s “package”.
It does not include payments not covered by the employment agreement, such as discretionary payments, weekly compensation from ACC, and reimbursement payments or allowances for work-related expenses, such as business trips, meal and tool allowances, etc.
Employees are entitled to be paid holiday pay before starting a period of annual leave, unless:
For employees that are paid weekly, this usually poses no problems. However, the same rule applies to employees who have their wages direct credited each month. All employees are entitled to be paid before taking their annual leave.
Where there is a closedown over Christmas, wages are paid on a usual day for such payment and holiday pay is usually paid at the end of the last day at work before the closedown.
If the employee’s employment ends within 12 months of them starting work for you, i.e. before the employee qualifies for annual leave, you must add eight percent of their gross earnings to their final pay, minus:
For example, an employee took one week’s annual leave in advance in their first year of employment.
Their ordinary weekly pay was $500. At the start of a closedown, or if their employment ends, the following would apply if they’ve worked there for less than 12 months:
Employers can include holiday pay in ordinary pay (“pay as you go”), but only in certain situations where:
For holiday pay to be paid in ordinary pay it must be:
“Pay as you go” holiday pay can only be used if it’s genuinely not possible to predict the pattern of employment, such as employees “on-call” to cover for sick employees.
If “pay as you go” holiday pay is used incorrectly, and employment lasts longer than 12 months, the employee becomes entitled to 4 weeks of paid annual leave, even though they received holiday pay during their first year – in other words, they get paid twice for annual leave “earned” in their first year.
Employees are entitled to their “relevant daily pay” for a public holiday, or for an alternative holiday they “earned” by working on a public holiday. Further information on relevant daily pay is provided in a separate fact sheet.
Note that the law can and does change quickly. The latest on holidays legislation can be found on www.ers.govt.NZ.