Holiday Pay, Here’s What You Need To Know?

Kiwi Businesses, often close for annual holidays just prior to Christmas and re-open in the New Year, ‘it’s a quiet time’ and most employees are happy to take this time to enjoy summer holidays with family. For employers it means less disruption to productivity and in some cases a reduction in labour and operating costs.

Your Employee employment agreements will include provision for team to take at least part of their annual leave during this close-down period.

Holiday pay – Here’s what you need to know…….

The calculation of holiday pay is an integral part of employee’s final pay for the calendar year. Employees are entitled to receive their pay for annual leave before they commence their leave. This provision provides an employee with money to pay for travel and accommodation.

The employer and employee can agree to leave the normal pay cycle undisturbed for the time off work. If so, it’s recommended that the employee’s employment agreements reflect this.

Calculating annual holiday pay

Whichever of the following is the larger becomes the rate of the weekly holiday pay.

1. ‘Average weekly earnings’: Calculate ‘total gross earnings’ for the 12 months before the end of the last pay period before the annual holiday and divide this figure by 52.

2. ‘Ordinary weekly pay’: Multiply the ordinary hourly rate of the employee’s pay as at the start of the holiday by the number of hours worked in a ‘normal’ week.

Calculating pay for statutory (public) holidays
1. ‘Relevant daily pay’: Find the amount of pay that the employee would have received if he or she had worked on the day concerned.

2. ‘Average daily pay’ is used when using relevant daily pay is not possible or practicable or there is variation in the daily pay during the pay period when the holiday occurs. Calculate gross earnings for the 52 weeks before the end of the immediately preceding pay period

3. and divide by the number of whole or part days during which the employee earned those earnings including days of paid holiday or leave.

In the case of employees who have commenced employment during the year, their average weekly earnings are calculated by taking the amount of their gross earnings from starting work until the last pay period before the holiday and dividing that amount by the number of weeks worked.

For examples on holiday pay please visit the Department of Labour’s e site: https://www.dol.govt.nz

Pay calculations can be complex especially when employees receive allowances, (e.g. travel) and have deductions made (e.g. KiwiSaver, student loan) so contact us if you need assistance in getting these im- portant calculations right.