Overview
Annual Holiday's are often referred to as Annual Leave. There are many factors to consider with Annual Holiday's and this article addresses them as logically as possible.
Employers can meet an employee's entitlement to Annual Holiday one of two ways:
- Paying 8% of gross earnings as part of pay, or,
- At least 4 weeks' holiday per entitlement year.
Employees receiving 8% Pay As You Go (PAYG) are often employed in circumstances described as "casual", but the more technical explanation is that this PAYG option is for employees whose work pattern is inconsistent and irregular enough that it would be impractical to determine what 4 weeks of leave would actually be.
The vast majority of employees in New Zealand do have a work pattern that is sufficiently consistent and regular enough (I.e. Monday to Friday) that their holiday entitlements are met by providing them with no fewer than 4 weeks of Annual Holiday.
How Leave Balances Arise
When employment commences an employee has 0 weeks of Annual Holiday. Entitlement arises after 12 months "continuous employment".
When entitlement arises, it has no specific dollar value. It is not wedded to any rate of pay for the employee when it arose. The value of the leave is determined only once it is taken. This is done by a series of calculations when the employee either takes leave as time off, or cashed out.
The balance of Annual Holiday is in weeks. This is a legal standard defined under the Holidays Act to ensure employees and employers are not unfairly impacted if a working pattern was to change (I.e. someone returns from parental leave on reduced hours).
Many payroll systems display this balance of Annual Holiday in hours or days. This is wrong and is often a symptom of larger problems with the payroll software. Whilst many employment circumstances may have a simple equivalence between hours and weeks (I.e. Monday to Friday, 40 hours = 1 week) it is not that simple for all jobs which is why the standard measure is weeks, ensuring all New Zealand employees have fair and equal access to time off.
A value that is often displayed in error in many payroll systems is "Accrual", meaning employees may expect to see a balance under this label, or expect to a see a combined balance of Annual Holiday that incrementally increases each pay period. It is important that employees and employers understand that there is no legal framework for Accrual and that a leave balance will typically only increase once a year, when entitlement arises.
An employer may choose to show Accrual on a Tempus payslip, but this is an arbitrary value with no legal obligation to be paid as time off. It is often displayed to show employees an indication of progress in their entitlement year I.e. how close are they toward their next 4 weeks' entitlement.
If your payroll has recently changed to Tempus, your balance may have undergone a conversion and/or reassessment. It is possible that the displayed balance may be different than what was shown on previous payslips under an older tool. An employee in a Monday-Friday role for 18 months may have had a combined entitlement and accrual figure totalling 240 hours, but is now seeing a balance of 4 weeks. What has happened? Converting from units to hours, the 240 hours would be 6 weeks. Tempus and/or your employer may have removed the arbitrary accrual values from your display. The 18 month employee has had 1 full year of continuous employment and became entitled to 4 weeks, whereas any weeks 5 and 6 are not technically owed and are simply removed from the display to avoid confusion. There will be another 4 weeks (i.e. Weeks 5-8) added to the balance when the second entitlement arises at 24 months.
If your annual holiday balance is currently not shown on your payslip, it means your balance is in the process of being reassessed and converted. You are still free to request leave and your employer may still approve it and even grant your balance to go into advance (overdraft). Your entitlements haven't been affected, please bear with everyone as we undergo the complex migration process.
How Leave Balances Are Used
Much as Annual Holiday has no dollar value until it is taken, it also has no value of days or hours off until it is taken. Annual Holiday of 4 weeks probably will eventually work out as being 20 days for many employees, but the calculation is executed based on the working pattern at the time the holiday being taken.
If an employee regularly works Monday-Friday, taking the Monday off is excusing them from 20% of their working week. Their balance of 4 weeks would be reduced by 20% of a week, to 3.8.
If the employee changed their roster to only work Mondays and Tuesdays each week, their carryover balance of 3.8 weeks is not affected. But there is a new working pattern if more holiday is taken. If the employee took another Monday, under their new roster they are being excused from 50% of their working week. The balance of 3.8 weeks would be reduced to 3.3 weeks.
Tempus can have a working pattern configured for you, as to ensure employees and employers have fair and equitable outcomes in deducting the correct amount of holiday entitlement, given their latest working patterns.
How Leave Balances Are Paid
Once the amount of weeks (part, or whole) is determined, there are independent calculations to determine the value of the leave at that time. Under the Holidays Act 2003 there are two compulsory calculations which must be carried out. The value which is greater must be used. That is, the rate of pay which most favours the employee is what must be paid.
The two rates of pay are sometimes referred to as 'long range' and 'short range'. The long range is called Average Weekly Earnings and is calculated over 12 months worth of Gross Earnings. The short range is called Ordinary Weekly Pay and is typically measured over 4 weeks worth of Gross Earnings.