Calculating Holiday Pay

The difference between standard pay & holiday pay

Calculation of what you need to pay your employees at times during the employment life cycle can be complicated, but with the right HR Management systems and processes in place, including access to professional advice, it can be straight forward.

Paying employees correctly for their work is important and they are entitled to know how much they will be paid, how often, and how they will be paid, for example, direct credited into their bank account.

Usually, this sort of information is set out in an employee’s employment agreement or in the company’s employee handbook.

Standard pay

The Wages Protection Act 1983 covers how wages must be paid and prevents unlawful or unreasonable deductions from wages.

Employers must pay at least the minimum wage to all employees. There are three minimum wage rates, these are:

  1. 1) the adult minimum wage;
  2. 2) starting-out workers (they must be paid at least the minimum starting-out wage) and;
  3. 3) trainees over 20 years of age (they must be paid at least the minimum training wage).

Further details on the different types of minimum wages and rates can be found on the Employment New Zealand website.

Entitlements to holidays and leave payments

  • All employees are entitled to at least four weeks’ paid annual holidays (or ‘annual leave’) each year.
  • All employees are entitled to paid leave on public holidays, when the public holiday falls on a day that would otherwise be a working day for the employee. Where an employee works on a public holiday that work should be paid at the rate of time and a half (at least).
  • After six months continuous employment or meeting the ‘hours worked test’, employers must support their employees with sick leave, bereavement leave and family violence leave when required.

Payment for annual holidays taken

Payment for annual holidays that employees are entitled to must be made at the rate of the greater of the employee’s ordinary weekly pay at the time the holiday is taken or the employee’s average weekly earnings over the 12-month period just before the annual holiday is taken. These calculations apply to all employees, including those whose pay has varied over the year or whose work pattern has changed during the year. For further information on calculating holiday pay rates you can visit the Employment New Zealand website.

Annual Leave Cash up

Annual holidays can’t be cashed-up unless the employee asks in writing and has completed 12 months employment. Employees may request to cash-up less than a week at a time and can make more than one request until a maximum of one week of the employee’s minimum annual holidays is paid out in each entitlement year.
If an employer agrees to pay out some of the employee’s annual holidays, they need to pay as soon as they can, usually the next pay day (and keep a record of the date and amount paid). The payment must be at least the same amount as if the employee had taken the holidays.

Wage Overpayment

Overpayments can occur due to a misunderstanding of an employment agreement, a clerical error, or technical fault in the payroll system. Regardless of the cause, employers must be careful when trying to recover an overpayment and know that success is not always guaranteed.

Maintain accurate pay and annual leave records

Employers must keep accurate wages and time, and holiday and leave records for all employees. Employee records must be made available to employees, their union and Labour Inspectors if they ask for them. They must be in written form or be easy to access and convert to written from and must be kept for six years.

Contact us to find out how we can help your business.

Contact us to find out how we can help your business.