Employee holiday entitlements and payments, by Rhonda Roberts & Nicki Hepi
How many days:
Under the holidays act 2003, employees are entitled to a minimum of 4 weeks annual holiday as paid time off work for rest and recreation after the completion of 12 months continuous employment. Employers can offer more than the minimum 4 weeks, for example, for those in high stress industries or as an incentive to remain in the job, e.g., 4 weeks increasing to 5 weeks leave per annum maybe given after 3 continuous years of service.
The number of days the 4 weeks annual leave represents depends on the employee’s work pattern.
For permanent employees with a regular work pattern the calculation is straight forward. e.g., if an employee works 4 days per week, leave entitlement is 16 days.
If the work pattern varies from week to week the calculation is more complicated. For those on a roster (e.g., 4 days on, 4 days off), a “week” will depend on the days the employee would have been working in the week they want to take holidays.
If the work pattern is unpredictable then a “week” is determined by averaging days over several prior weeks.
Technically an employee is not entitled to paid annual leave until they have completed 12 months service. However, it is common practice to pay employees leave in advance during the first year at their current hours and pay rate. It is wise to ensure that the amount paid does not exceed the amount the employee would be entitled to as final pay if he/she terminated his/her employment on the date the leave commences. For example, for an employee on 4 weeks annual leave, this would be 8% of his/her gross taxable earnings year to date.
Three weeks leave must be taken as time off work, but an employee can request to cash up the additional week or weeks. The request must be in writing and can only occur once in a 52-week period. Employers must give the request fair consideration but may decline the request.
Some businesses have implemented an annual closedown, the most common time being the Christmas holiday period. These are subject to 14 days’ notice being given when employees may be required to take annual leave entitlement during this time. If the employer agrees, an employee may take leave in advance of their annual anniversary entitlement.
Payment of the annual holiday is calculated at the time the leave is taken. It must be paid at the higher of:
- the employee’s normal hourly/daily rate
- the employee’s ordinary weekly pay at the beginning of the holiday
- the employee’s average weekly pay for the 12 months immediately prior to taking the holiday.
Ordinary weekly pay is the amount an employee is normally paid each week under their employment agreement. Ordinary weekly pay also includes regular allowances, regular incentive-based payments (e.g. commissions or piece rates), cash value or board or lodgings and regular overtime. Ordinary weekly pay does not include non-taxable allowances, as these are expense reimbursements or any discretionary payments such as one-off bonuses, as these are not part of the employment agreement.
Where ordinary weekly pay is unclear for any reason, then to work it out, take the gross earnings over the last 4 weeks less any irregular payments such as bonuses or one-off payments and divide that by 4.
Average weekly pay is calculated by taking the gross earnings for the last 12 months immediately prior to taking the annual holiday and dividing that by the number of days worked. The gross amount should include any bonuses and commissions as per the employment agreement.
Short Term contracts or casual employees:
Employees who are on a fixed term contract for less than 12 months or whose work is irregular and therefore non-viable to provide four weeks annual holidays i.e., on a casual basis, can agree in their employment contract to have their holiday pay paid as part of their regular pay. This is called “pay as you go”. The calculation for “pay as you go” is normally an additional 8% of the gross taxable pay in a single pay period. This must be identified separately on their payslip. With this calculation method there is no further leave entitlement.
In New Zealand there are currently 11 public holidays each year, soon to be 12 in the 2022 year, with Matariki being brought in as a new Friday public holiday.
Employee doesn’t work:
If an employee does not work on a public holiday that falls on an otherwise working day for them, you must pay the employee for that day in the pay period as if they had worked a normal day. This is calculated at the higher of the employee’s relevant daily pay, or average daily pay.
If an employee is to work on a public holiday that falls on an otherwise working day for them, they are entitled to a minimum of time and a half based on the hours that they worked plus an alternative holiday. You do not have to pay an employee for an entire day if they work on a public holiday, only for the actual hours worked.
The alternative holiday can be taken at any time that is agreed between the employer and the employee. This should be paid at the higher of the employee’s relevant daily pay or average daily pay at the time the employee takes it. An alternative holiday can be exchanged for a cash payment if it is untaken after 12 months of entitlement arising and if both the employer and the employee agree to the cash-up.
Casuals or “filling in”:
Where an employee works on a public holiday and it is not an otherwise working day for them or they are specifically employed to work only on public holidays (for example, an employee who is employed to work at the racetrack only for the Waitangi Day meeting), then there is no entitlement to an alternative holiday, but the employee must still be paid at least time and a half.
Mondayisation of public holidays:
If Waitangi Day, ANZAC Day, Christmas Day, Boxing Day, New Year’s Day or the day after New Year’s Day fall on a Saturday or Sunday and that day would not otherwise be a working day for the employee, then the holiday is transferred to the following Monday (or Tuesday for Christmas Day, Boxing Day, New Year’s Day and the day after New Year’s Day when they fall on a Sunday) so that the employee still gets a paid day off if the employee would usually work on that day.
If the holiday falls on a Saturday or Sunday and that day would otherwise be a working day for the employee, the holiday remains on the traditional day and the employee is entitled to that day off with pay. This may mean that, depending on how an organisation’s operations are structured, some employees will have public holidays ‘mondayised’ while others will observe them on the day that they fall.
An employee is not entitled to more than four public holidays over the Christmas and New Year period, regardless of their work pattern.
Detailed written records for holiday and other leave entitlements must be kept or maintained for at least 6 years.
There are many complications with annual and public holidays. Each payment should be looked at on a case-by-case basis. Further information can be found at www.employment.govt.nz or contact us.