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04 Dec 2014
It's that time of the year, when we receive a number of queries from clients regarding employee leave entitlements and holiday pay rates. Their employment agreement may increase entitlements but can not reduce below the legal entitlements.
Under the Holidays Act, employees are entitled to 4 weeks annual leave per year. Three weeks leave must be taken as time off work but the additional week can be cashed-up. Cashing-up can only occur at the employee's written request. The employer has to give the request fair consideration but may decline it.
An employer may implement a workplace closedown once per year and require employees to take time off over this period, regardless of whether they have any annual leave entitlement. The employer must give 14 days' advance notice of closedown. If there is a regular annual closedown, a date can be nominated for use as the annual holiday entitlement rollover date. In all other cases, the holiday entitlement date rolls over on the anniversary of the individual employee's commencement date
.Payment for annual holidays is at the greater of the "ordinary weekly pay" at the time the holiday is taken or the "average weekly earnings" over the previous year.
Ordinary weekly pay includes:
Discretionary payments which aren't part of the employment agreement (e.g. a one-off bonus) aren't included. It also doesn't include non taxable allowances, as these are expense reimbursements. Where ordinary weekly pay is unclear, a calculation over a 4 week period to the end of the last pay period can be used.
Average weekly earnings are determined by calculating total earnings for the 52 weeks to the end of the last pay period and dividing by 52. As well as wages, overtime, commission etc, earnings include annual and public holiday, bereavement and sick leave and first week ACC payments.
Employees may request leave in advance if they have no entitlement. Their employer may refuse the request. If agreed, payment is based on the greater of ordinary or average earnings. Usual practice is to restrict total payment to the amount of leave that would be payable if the employee terminated employment at that date.
Employees are entitled to a paid day off on a public holiday, but only if it would otherwise be a working day. Whether it would be a work day is determined by reference to the employment agreement, roster or usual work patterns. Where a public holiday occurs during a closedown, the closedown is ignored for working day determination.
Payment for unworked public holidays is at "relevant daily pay" (RDP). This is the amount the employee would otherwise have earned on that day, if they had worked it, and includes overtime and commission. If the employees daily pay varies "average daily pay" (ADP), which is an average of the prior 52 weeks, is used. If the employee wouldn't normally have worked the day, there is no pay.
Actual time worked on a public holiday is paid at the greater of:
In addition, if the day is otherwise a working day, the employee is entitled to another day off work on pay. If the alternative day is not taken within 12 months, it may be paid out.
There are many complications with annual and public holidays and answers may be found at www.dol.govt.nz or contact your accountant.
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