Payment for annual holidays
Payment for annual holidays is at the greater of either 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 annual holiday is taken. Payment calculations for other types of leave are covered separately.
Definitions: “Ordinary weekly pay” and “average weekly earnings”
“Ordinary weekly pay” represents everything an employee is normally paid weekly, including:
- regular allowances, such as a shift allowance
- regular productivity or incentive-based payments (including commission or piece rates)
- the cash value of board or lodgings
- regular overtime.
Intermittent or one-off payments as well as discretionary payments are not included in ordinary weekly pay.
1. For many people, ordinary weekly pay is quite clear because they are paid the same amount each week.
2. Where ordinary weekly pay is unclear for any reason, the Act provides a formula for working it out. Ordinary weekly pay is established by:
- going to the end of the last pay period
- from that date, going back
- four weeks, or
- if the pay period is longer than four weeks, the length of the pay period
taking the gross earnings for that period
- deducting from the gross earnings any payments that are irregular or that the employer is not bound to pay
- dividing the answer by four.
3. Sometimes an employment agreement will include a specified ordinary weekly pay. If this is the case, the figure in the employment agreement should be compared with the actual ordinary weekly pay (as calculated under 1 or 2 above), and the greater of the two should be used as “ordinary weekly pay”.
“Average weekly earnings” are determined by calculating gross earnings over the 12 months prior to the end of the last payroll period before the annual holiday is taken, and dividing that figure by 52. The following payments make up gross earnings and should be included in the calculation:
- Salary and wages.
- Allowances (but not reimbursing allowances).
- All overtime.
- Piece work.
- At-risk, productivity or performance payments.
- Payment for annual holidays and public holidays.
- Payment for sick and bereavement leave.
- The cash value of board and lodgings supplied.
- Amounts compulsorily paid by the employer under ACC (i.e. the first week of compensation).
- Any other payments that are required to be made under the terms of the employment agreement.
Unless the employment agreement says otherwise, reimbursement payments and discretionary or ex gratia payments (for example, genuinely discretionary bonuses) are not included in these calculations; nor are payments made by ACC, or when an employee is on voluntary military service, or payments for cashed-up holidays.
Remember: When calculating both “ordinary weekly pay” and “average weekly earnings”, the greater figure is used for the employee’s annual holiday pay.
When an employee is to take annual holidays, the first step is to determine what portion of the entitlement is being taken, taking into account what a week means for that employee. This portion may be a period of weeks, or a period of less than a week.
For example, if an employee who works three days per week has agreed with their employer that their four-week holiday entitlement will be 12 days, then takes a day off work, this will be one-third of a week of annual holidays.
In this case, payment would be a proportion of ordinary weekly pay or average weekly earnings based on the period of leave taken, namely, one-third of the greater of those weekly earnings.
The Act describes how to calculate annual holiday payments in a variety of circumstances. These calculations are outlined in the following subsections:
- Employees after completion of 12 months’ service.
- Employees during their first year of service.
- Employees who take annual holidays in advance of entitlement.
- On an employee’s resignation or termination.
- Employees on genuine fixed-term agreements.
- Moving from fixed-term to permanent employment with the same employer.
- Where the fixed-term agreement is not genuine or exceeds 12 Months.
- Employees with intermittent or irregular work patterns.