Get up to speed with annual leave

With Christmas looming, it’s a useful time to recap how your business is going to manage staff holiday entitlements and pay.

Summer is a time when many businesses either close down or manage on skeleton staffing arrangements, so that employees can spend Christmas and New Year with family and friends. During this period, staff often take annual leave, as well as public holidays.

Annual holidays

Under the Holidays Act 2003, employees are entitled to four weeks’ (20 days’) annual leave after the first year of employment. The key for all employers is:

• Working out and agreeing what the entitlement to four weeks’ paid annual leave means.
• Ensuring all employees are paid correctly when they take annual leave or their employment ends.

Payment for annual holidays is the greater of the ordinary weekly pay at the time the holiday is taken, or the employee’s average weekly earnings over the 12-month period before the holiday. Please note this calculation may vary where an employee has been on a period of parental leave in the previous 12 months.

Cashing up leave

Employees can request up to one week of their annual holidays to be paid out. However, it is at the employer’s discretion to agree to the request to cash up the employee’s holidays. If the employer does not agree, he/she doesn’t have to give a reason. Cashing up annual holidays cannot be a negotiated term or condition of the employment agreement.

It is important to note that the one week cash up is not included in gross earnings and it needs to be recorded in the employee’s holiday and leave record.

Public holidays

Public holidays are celebrated on the day they fall, unless the employer and employee agree in writing to transfer the observance of the public holiday to another working day, or where Christmas Day, Boxing Day, New Year’s Day and 2 January fall on either a Saturday or Sunday.

If these four public holidays fall on either a Saturday or Sunday, employees who normally work on these days celebrate the public holiday on these days. For employees who don’t normally work Saturday or Sunday, the public holiday is transferred to the Monday or Tuesday respectively. This year, all the Christmas and New Year holidays fall midweek, meaning the ‘Mondayisation’ of these holidays will not be an issue. To help you decide whether an employee is entitled to take the public holiday, you will need to determine if the public holiday falls on an otherwise working day. MBIE has an online Holiday Tool that can help you with this: visit www.dol.govt.nz/holidaytool

Payment for the public holidays

Don’t forget that employees are entitled to a paid day off on these Christmas and New Year holidays, provided that that day would otherwise be a working day for them. The public holiday is paid at the employee’s relevant daily pay or average daily pay rate, as follows.

• The relevant daily pay rate is the amount the employee would have received if they had worked their usual hours that day (including regular productivity, commission and overtime payments). For instance, a person may work eight hours a day, Monday-Friday and Monday is a public holiday. They take the day off and they would be paid eight hours for that day.
• If it is not possible or practicable to determine an employee’s relevant daily pay, or the daily pay varies within the pay period when the holiday falls, employees are entitled to be paid for the public holiday at their average daily pay rate. For example, if a salesperson is on a base salary and commission, which means their daily pay will fluctuate. They work Monday to Saturday and Labour Day falls on a Monday, which they take off as a holiday. The employer can use the average daily pay calculation to work out their pay for that day.
• Average daily pay is a daily average of the employee’s gross earnings over the past 52 weeks; it is divided by the number of whole or part days worked over that period. It should be noted that if a part day was worked, then it’s counted as one day worked for the calculation. For example, if an employee works 210 full days and six part days, their gross earnings are divided by 216 days.

If an employee is required by their employer to work on a public holiday over this period (as opposed to simply electing to do so), the employee is entitled to time and a half (of their relevant daily pay or average daily pay) for all hours worked on that day.

“Now is the time to think about how your business is going to manage staff holiday entitlements and pay

Further, if the public holiday falls on a day that would otherwise have been a working day for the employee, they are also entitled to receive a full paid day off as an alternative holiday.  This is again calculated at either their relevant daily pay or average daily pay rate.

Transferring public holidays

Employers and employees can agree to transfer the employee’s observance of a public holiday to a different working day if certain criteria are met.

There are two situations where this may occur:

• Employers and employees can transfer part of a public holiday, in cases where an employee is to start work on one day and finish on the following day.
• Employers and employees may agree to transfer the observance of public holidays to another working day, to meet the needs of the business or the individual needs of the employee. For example, an employer and employee may agree to transfer the Boxing Day public holiday to the 26 January, so the employee can celebrate Australia Day as their public holiday.

Close downs

Special rules apply when there is a customary annual business close down. This close down can occur either across the entire workplace, or for part of an enterprise.

As an employer, you may implement such a closure once a year and require your employees to take annual leave during the period of the close down. You are required to give employees at least 14 days notice.

For employees with less than 12 months’ service, the level of holiday pay for the close down period can be established by:

• The employer paying the employee 8% of gross earnings to date (the employee’s anniversary date will then be treated as starting on the date on which the closedown began), or;
• The employer and employee agreeing to the employee taking paid annual holidays in advance even though there is no entitlement.

Additional information on holidays and leave can be found at www.dol.govt.nz/er/holidaysandleave/