Annual Holiday Pay
About the Author:
Paul Wilton (editor)
CA with degrees in commerce, accounting and information technology. Paul worked overseas in the “Big 4” accounting firms and served as a director at Audit New Zealand before setting up his own consultancy. Author of A-Z of New Zealand Business Law, Paul has over 20 years of experience as a business owner and consultant. He joined FBA in 2004 and is totally committed to providing excellence in quality and value to our subscribers.
Employees are entitled to a minimum of 4 weeks pay for every 12 months of service. A week's Holiday Pay for annual leave is the greater of:
The average weekly earnings; and
The current ordinary weekly pay at the time the leave is taken.
Unless you have software that will do this for you, these calculations need to be done every time an employee takes annual leave.
Average weekly earnings
Average weekly earnings are worked out by calculating the employee’s gross earnings over the 12 months prior to the end of the last payroll period before the annual holiday is taken, and dividing that figure by 52.
Ordinary weekly pay
Ordinary weekly pay is the amount an employee receives under his or her employment agreement for an ordinary working week, including:
regular allowances, such as a shift allowance
regular productivity or incentive-based payments (including commission or piece rates)
the cash value of board or lodgings
regular overtime.
Reimbursements for expenses are excluded unless otherwise stated in the employee agreement.
Holiday Pay must be paid to the employee before they take leave, unless the employer and employee agree in writing that the normal pay cycle will continue undisturbed during the holiday. In either case, the holiday pay calculation must be done as at the start of the annual holiday as average weekly pay, for example, can change while the employee is on leave.
Cashing up Annual Leave
An employee may request in writing to be paid in cash for up to one week’s annual leave per year and this may be granted by the employer. The request must be considered within a reasonable time and may be declined. The employee must be advised of the decision in writing and no reason is required to be given. If granted, the payment must be at least the same as if the employee had taken the holidays and must be paid as soon as practical – usually the next pay day. An employer cannot pressure an employee into cashing up holidays.
Casual Staff
Casual employees are not entitled to annual leave. Instead, they receive 8% over and above their gross earnings for every 12 month's continuous service. If they agreed to be paid the 8% on a pay as you go basis on each pay day, then they are not entitled to extra holiday pay after 12 months or in the event of a business close down. If they have not been paid on a pay as you go basis, and the business has a close-down period, then they are entitled to 8% of their gross earnings, less any payments already made from that amount.
For public holidays, if it is clear that a casual employee would have worked on that day (had it not been a public holiday), then they are entitled to be paid for that public holiday just like any other employee.
With casual staff, it is crucial to keep an eye on their hours. If a regular pattern has formed, then they could lose their status as a casual employee and become either a full- or part-time employee.
MBIE (Ministry of Business Innovation & Employment) has put out a number of useful employment guides, including a guide on leave entitlements and pay.
FBA Editor
The legal distinction between a contractor and employee is changing. Recently there have been a number of significant Employment Court decisions shaping the law in this area.