APPENDIX FOUR: EXAMPLES OF EMPLOYER REPRESENTATIVES' RECOMMENDATIONS FOR THE ACCRUAL AND PAYMENT OF LEAVE

Accrual of leave examples

The Holidays Act 2003 works when staff are working fixed shift patterns where the duration of each shift is the same. There are a number of difficulties when staff work variable shift lengths where the construct of the current Holidays Act restricts how the event is paid. These include:

• defining annual leave in units of weeks
• defining sick leave, bereavement leave, and alternative holidays in units of days
• adjusting leave balances to protect the duration of leave when changing the time worked, and
• providing and deducting alternative holidays.

These examples show how these issues can be resolved by utilising the proposed changes in the Holidays Act.

The examples are based on the following:

Roster

Employee works variable hours as:

Monday 3 hours

Tuesday 10 hours

Wednesday 9 hours

Thursday 10 hours

Friday 8 hours

Saturday RDO

Sunday RDO

Total 40 hours per week

Remuneration

Standard hours	= 40 per week, 2080 per year
Annual Salary	= $52,000 for 2080 hours of work per year = $25.00 per hour pay rate
Overtime in previous 52 weeks	= $5,200
Total payments in previous 52 weeks	= $57,200
Standard Rate	= $57,200 / 2080 = $27.50 per standard hour
RDP (current)	= $27.50 per standard hour (for simplicity in the examples)
Annual holidays entitlement (current)	= 4 weeks x 40 hours per week = 160 hours
Annual holidays entitlement (new)	= 4/52 x 2080 = 160 hours
Annual holidays accrual	= 160 / 26 fortnights = 6.154 hours per fortnight
Sick leave entitlement	= 1/52 x 2080 = 40 hours
Sick leave accrual	= 40 / 26 fortnights = 1.538 hours per fortnight

Example 1 - Employee has Monday as an annual holiday

Current practice

Leave paid = 3 hours x $27.50 = $82.50

Regular pay = 37 hours x $25.00 = $925.00

Total = $1007.50

3 hours deducted from the employee's annual holiday balance.

Future practice

The future practice is unchanged but the proposed changes will avoid any conflict in the hours used for annual holidays.

Example 2 - Employee has Thursday as an annual holiday

Current practice

Leave paid = 10 hours x $27.50 = $275.00

Regular pay = 30 hours x $25.00 = $750.00

Total = $1025.00

10 hours deducted from the employee's annual holiday balance.

Future practice

The future practice is unchanged but the proposed changes will avoid any conflict in the hours used for annual holidays.

Example 3 - Employee works a public holiday on Monday

Current practice

Public holiday paid = 150% x 3 hours x $27.50 = $123.75

Regular pay = 37 hours x $25.00 = $925.00

Total = $1,048.75

8 hours credited to the employee's alternative holidays' balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore the alternative holidays would need to be based on a daily entitlement of 40/5 = 8 hours for the day. The employee would have 8 hours credited to their leave balance, although they only worked for three hours on the public holiday. Should they take an alternative holiday on the Monday, they would have 8 hours deducted from their alternative holidays balance, but paid for 3 hours at RDP.

Future practice

Public holiday paid = 150% x 3 hours x $27.50 = $123.75

Regular pay = 37 hours x $25.00 = $925.00

Total = $1,048.75

3 hours credited to the employee's annual holidays' balance.

The calculation is simplified so that the public holiday is paid and the same amount of annual holidays' are credited. These annual holidays would be taken under the normal annual holiday processes.

Example 4 - Employee works a public holiday on Thursday

Current practice

Public holiday paid = 150% x 10 hours x $27.50 = $412.50

Regular pay = 30 hours x $25.00 = $750.00

Total = $1,162.50

8 hours credited to employee's alternative holidays' balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore the alternative holidays would need to be based on a daily entitlement of 40/5 = 8 hours for the day. The employee would have 8 hours credited to their leave balance, although their public holiday was 10 hours. Should they take an alternative holiday on the Thursday, they would have 8 hours deducted from their leave balance, but paid for 10 hours at RDP.

Future practice

Public holiday paid = 150% x 10 hours x $27.50 = $412.50

Regular pay = 30 hours x $25.00 = $750.00

Total = $1,162.50

10 hours credited to the employee's annual holidays' balance.

The calculation is simplified so that the public holiday is paid and the same amount of annual holidays' are credited. These annual holidays would be taken under the normal annual holidays processes.

Example 5 - Employee has sick leave on Monday

Current practice

Leave paid = 3 hours x $27.50 = $82.50

Regular pay = 37 hours x $25.00 = $925.00

Total = $1007.50

8 hours deducted from the employee's sick leave balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore sick leave would need to be based on a daily entitlement of 40/5 = 8 hours for the day. The employee would have 5 days of 8 hours = 40 hours credited to their leave balance. Because sick leave is currently a daily entitlement, a whole day should be deducted from their leave balance (8 hours), although their sick leave day was only 3 hours, and they would be paid for 3 hours at RDP.

Future practice

Leave paid = 3 hours x $27.50 = $82.50

Regular pay = 37 hours x $25.00 = $925.00

Total = $1007.50

3 hours deducted from the employee's sick leave balance.

The calculation is simplified so that the sick leave is paid and the same amount of sick leave is deducted.

Example 6 - Employee has sick leave on Thursday

Current practice

Sick leave paid = 10 hours x $27.50 = $275.00

Regular pay = 30 hours x $25.00 = $750.00

Total = $1025.00

8 hours deducted from the employee's sick leave balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore sick leave would need to be based on a daily entitlement of 40/5 = 8 hours for the day. The employee would have 5 days of 8 hours = 40 hours credited to their leave balance. Because sick leave is currently a daily entitlement, a day should be deducted from their leave balance (8 hours) although their sick leave day was 10 hours and they would be paid for 10 hours at RDP.

Future practice

Sick leave paid = 10 hours x $27.50 = $275.00

Regular pay = 30 hours x $25.00 = $750.00

Total = $1025.00

10 hours deducted from the employee's sick leave balance.

The calculation is simplified so that the sick leave is paid and the same amount of sick leave is deducted.

Example 7 - Employee has 3 hours of sick leave on Thursday

This is the scenario when the employee falls sick while at work and in this case, leaves work 3 hours early because of that sickness.

Current practice

Sick leave paid = 3 hours x $27.50 = $82.50

Regular pay = 37 hours x $25.00 = $925.00

Total = $1,007.50

Proportion of day absent through sickness = 3/10

Hours to be deducted from sick leave balance = 3/10 x 8 = 2.4 hours. This utilises the proportion of the standard day that was absent.

2.4 hours deducted from the employee's sick leave balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore sick leave would need to be based on a daily entitlement of 40/5 = 8 hours for the day. The employee would have 5 days of 8 hours = 40 hours credited to their leave balance. Because sick leave is currently a daily entitlement, the proportion of the day should be deducted from their leave balance (2.4 hours) although their sick leave was 3 hours and they would be paid for 3 hours at RDP.

Future practice

Sick leave paid = 3 hours x $27.50 = $82.50

Regular pay = 37 hours x $25.00 = $925.00

Total = $1,007.50

3 hours deducted from the employee's sick leave balance.

The calculation is simplified so that the sick leave is paid and the same amount of sick leave is deducted.

Note that the proposed leave entitlements are based on time, not on duration, so that the actual time worked, or rostered to be worked is recognised.

Moving from full-time to part-time

The current annual holidays' entitlement is defined in weeks, so when an employee transfers from full-time to part-time, their annual holidays balance needs to be maintained in weeks. For example, a full-time employee has a leave balance of 80 hours (two weeks) and moves to a part-time role at 20 hours per week. Their annual holiday balance is maintained at two weeks, so their holiday balance, shown in hours, is changed to 2 weeks x 20 hours per week = 40 hours. This maintains the duration of the annual holidays, but reduces the hours, and reduces the value of the annual holiday balance. The proposed changes would ensure that the time accrued (80 hours), and the value of the annual holidays is maintained. The available duration of the holiday would increase from a potential two weeks to four weeks. The proposed changes avoid the need to revalue leave and change leave balances defined in hours. Please note that the reverse will also occur with a part-timer moving to a full-time role, the holiday balance will remain unchanged, but when the leave is taken in a full-time role, the duration of leave measured in hours will be reduced because the amount of time normally worked in the week increases.

A further example:

Employee changes to part-time after 6 months at full-time (as above)

Shift pattern becomes:

Monday 3 hours

Tuesday 10 hours

Wednesday 8 hours

Thursday RDO

Friday RDO

Saturday RDO

Sunday RDO

Total 21 hours per week

The employee's annual holiday hourly rates remain the same as salary is reduced to recognise the reduced hours worked

Ordinary Rate	= $25.00 per standard hour
Standard Rate	= $27.50 per standard hour
Standard annual hours	= 21 hours per week x 52 weeks = 1092 hours per year
Annual holiday entitlement	= 4/52 x 1092 = 84 hours
Annual holiday accrual	= 84 / 26 fortnights = 3.230 hours per fortnight
Sick leave entitlement	= 1/52 x 1092 = 21 hours
Sick leave accrual	= 21 / 26 fortnights = 0.807 hours per fortnight.
Average shift length	= 21/3 shifts per week = 7 hours per average shift.

Example 8 - Employee has Monday as an annual holiday

Current practice

Leave paid = 3 hours x $27.50 = $82.50

Regular pay = 18 hours x $25.00 = $450.00

Total = $532.50

3 hours deducted from the employee's annual holiday balance.

Future practice

The future practice is unchanged but the proposed changes will avoid any conflict in the hours used for annual holidays.

Example 9 - Employee has Tuesday as an annual holiday

Current practice

Leave paid = 10 hours x $27.50 = $275.00

Regular pay = 11 hours x $25.00 = $275.00

Total = $550.00

10 hours deducted from the employee's annual holiday balance.

Future practice

The future practice is unchanged but the proposed changes will avoid any conflict in the hours used for annual holidays.

Example 10 - Employee works a public holiday on Monday

Current practice

Public holiday paid = 150% x 3 hours x $27.50 = $123.75

Regular pay = 18 hours x $25.00 = $450.00

Total = $573.75

7 hours credited to the employee's alternative holidays' balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore the alternative holidays would need to be based on a daily entitlement of 21/3 = 7 hours for the day. The employee would have 7 hours credited to their alternative holiday balance, although their public holiday was only 3 hours. Should they take an alternative holiday on the Monday, they would have 7 hours deducted from their alternative holidays balance, but paid for 3 hours at RDP.

Future practice

Public holiday paid = 150% x 3 hours x $27.50 = $123.75

Regular pay = 18 hours x $25.00 = $450.00

Total = $573.75

3 hours credited to employee's annual holiday balance.

The calculation is simplified so that the public holiday is paid and the same amount of annual holidays' are credited. These annual holiday would be taken under the normal annual holiday processes.

Example 11 - Employee works a public holiday on Tuesday

Current practice

Public holiday paid = 150% x 10 hours x $27.50 = $412.50

Regular pay = 11 hours x $25.00 = $275.00

Total = $687.50

7 hours credited to the employee's alternative holidays' balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore the alternative holidays would need to be based on a daily entitlement of 21/3 = 7 hours for the day. The employee would have 7 hours credited to their leave balance, although their public holiday was 10 hours. Should they take an alternative holiday on the Tuesday, they would have 7 hours deducted from their alternative holidays' balance, but paid for 10 hours at RDP.

Future practice

10 hours credited to employee's annual holiday balance.

The calculation is simplified so that the public holiday is paid and the same amount of annual holidays' are credited. These annual holidays would be taken under the normal annual holiday processes (see above).

Example 12 - Employee has sick leave on Monday

Current practice

Leave paid = 3 hours x $27.50 = $82.50

Regular pay = 18 hours x $25.00 = $450.00

Total = $532.50

7 hours deducted from the employee's sick leave balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore sick leave would need to be based on a daily entitlement of 21/3 = 7 hours for the day. The employee would have had 3 days of 7 hours = 21 hours credited to their leave balance. Because sick leave is currently a daily entitlement, a whole day should be deducted from their leave balance (7 hours), although their sick leave day was only 3 hours and they would be paid for 3 hours at RDP.

Future practice

Leave paid = 3 hours x $27.50 = $82.50

Regular pay = 18 hours x $25.00 = $450.00

Total = $532.50

3 hours deducted from the employee's sick leave balance.

The calculation is simplified so that the sick leave is paid and the same amount of sick leave is deducted.

Example 13 - Employee has sick leave on Tuesday

Current practice

Sick leave paid = 10 hours x $27.50 = $275.00

Regular pay = 11 hours x $25.00 = $275.00

Total = $550.00

7 hours deducted from the employee's sick leave balance.

Under the current legislation, for a payroll system that manages leave in hours, a daily entitlement of leave needs to be converted to hours using averaging. Therefore sick leave sick leave would need to be based on a daily entitlement of 21/3 = 7 hours for the day. The employee would have had 3 days of 7 hours = 21 hours credited to their leave balance. Because sick leave is currently a daily entitlement, a whole day should be deducted from their leave balance (7 hours) although their sick leave day was 10 hours and they would be paid for 10 hours at RDP.

Future practice

Sick leave paid = 10 hours x $27.50 = $275.00

Regular pay = 11 hours x $25.00 = $275.00

Total = $550.00

10 hours deducted from the employee's sick leave balance.

Using daily pay rates

The following examples demonstrate that the same construct for the pay calculations can be used with working days as the units of measure. This could apply where staff are on a fixed salary without overtime, or where agreement is reached to pay employees a fixed daily amount independent of the number of hours actually worked on the day. This could be typically used where there is a stabilised income with the same amount paid each week.

Employee works 4 shifts of 10 hours a week. The employee is on a fixed salary without overtime. The only variable earnings are when the employee works a public holiday.

Employee works:

Monday 10 hours

Tuesday 10 hours

Wednesday 10 hours

Thursday 10 hours

Friday RDO

Saturday RDO

Sunday RDO

Total 40 hours per week, or 4 days per week.

Standard time	= 40 per week, 2080 hours per year or = 4 x 52 = 208 days per year
Annual Salary	= $52,000 for 208 days of work per year = $250.00 per day pay rate
Public holiday payments in 52 weeks (5 public holidays worked)	= $625.00
Total income over previous 52 weeks	= $52,625
Standard Rate	= $52,625 for 208 days of work per year = $253.00 per day pay rate
Annual holiday entitlement	= 4/52 x 208 = 16 days per year
Annual holiday accrual	= 16 / 26 fortnights = 0.6154 days per fortnight
Sick leave entitlement	= 1/52 x 208 = 4 days per year
Sick leave accrual	= 4 / 26 fortnights = 0.1538 days per fortnight

Example 14 - Employee has Monday as an annual holiday

Future practice

Leave paid = 1 day x $253.00 = $253.00

Regular pay = 3 days x $250.00 = $750.00

Total = $1,003.00

1 day deducted from the employee's annual holiday balance.

Example 15 - Employee works a public holiday on Monday

Future practice

Public holiday paid = 150% x 1 day x $253.00 = $379.50

Regular pay = 3 days x $250.00 = $750.00

Total = $1,129.50

1 day credited to the employee's annual holiday balance.

Example 16 - Employee has sick leave on Monday

Future practice

Leave paid = 1 day x $253.00 = $253.00

Regular pay = 3 days x $250.00 = $750.00

Total = $1,003.00

1 day deducted from the employee's annual holiday balance.

Using daily rates over 7 days per week

The following scenario addresses the situation where the shift pattern is so irregular and unpredictable that it is agreed that duration based units of time are used.

Employee is contracted to work an agreed amount of time over the year, and is available to work any day of the year with 10 days off in each 4 weeks. Agreement reached to pay 7 days per week whether or not each day is worked. This protects the salary and provides a stable income.

Standard time	= 365 days per year
Annual Salary	= $36,500 per year = $100.00 per calendar day pay rate
Public Holiday Payments in previous 52 weeks (5 public holidays worked)	= $250
Total payments in previous 52 weeks	= $36,750
Standard Rate	= $36,750 / 365 = $100.68 per calendar day
Annual leave entitlement	= 4/52 x 365 = 28.07 calendar days per year
Annual leave accrual	= 28.07 / 26 fortnights = 1.08 calendar days per fortnight
Sick leave entitlement	= 1/52 x 365 = 7.02 calendar days
Sick leave accrual	= 7.02 / 26 fortnights = 0.27 calendar days per fortnight

Example 17 - Employee has Monday as an annual holiday

Future practice

Leave paid = 1 day x $100.68 = $100.68

Regular pay = 6 days x $100.00 = $600.00

Total = $700.68

1 day deducted from the employee's annual holiday balance.

Example 18 - Employee works a public holiday

Future practice

Public holiday paid = 150% x 1 day x $100.68 = $151.02

Regular pay = 6 days x $100.00 = $600.00

Total = $751.02

1 day credited to the employee's annual holiday balance.

Example 19 - Employee has sick leave on Monday

Future practice

Leave paid = 1 day x $100.68 = $100.68

Regular pay = 6 days x $100.00 = $600.00

Total = $700.68

1 day deducted from the employee's sick leave balance.

Lag effect of using the 52 week average

Using the average rates over a 52 week period to value leave, moderates the values and means that an increase in pay rate ($ per hour) will only be fully reflected in the standard pay rate after 52 weeks. The same situation occurs when a person has a reduction in pay, where the full decrease will only be fully reflected in the pay rate after 52 weeks. Note that a person who changes the amount of time they work, will see an immediate increase in their earnings (moving part-time to full-time), if their hourly rate is maintained.

The impact of RDP on leave rates

The consequence of using a four week average for RDP is that additional earnings, such as overtime, can have a disproportionate impact on the value of leave, if that leave is taken immediately after a period of high earnings. Employees not only receive the payment for the overtime, but also receive it in the higher value for the leave taken in the following period. The following examples show this impact and how the proposed changes would reflect the same situation.

Example 20

Salary = $52,000

Hourly Rate = $52,000 / 2080 = $25 per hour

Person works 10 hours overtime per week throughout the year, except that they work 20 hours overtime in the 4 weeks immediately prior to the current pay period. They are paid T1.5 for the overtime.

Their earnings for the first 48 weeks =

48 weeks x 40 hours x $25 per hour + 48 weeks x 10 hours x 1.5 x $25 per hour =

$48,000 + $18,000 = $66,000

Their earnings for the overtime period =

4 weeks x 40 hours/week x $25 per hour + 4 x 20 hours/week x 1.5 x $25 =

$4,000 + $3,000 = $7,000

The standard hours in this 4 week period = 4 weeks x 40 hours = 160 hours.

Ordinary weekly pay as an hourly rate = $7,000 / 160 = $43.75 per hour.

The employee then takes a well earned break and takes 2 weeks' annual holidays.

His leave pay = 2 x 40 hours x $43.75 = $3,500

If the 52 week average rate was used, then the average hourly rate would be =

$66,000 + $7,000 = $73,000

The standard hours in this period = 2080

The hourly rate = $73,000 / 2080 = $35.10 per hour

His leave pay = 2 x 40 hours x $35.10 = $2,808

The difference in the value of his leave between the two pay calculations =

$3,500 - $2,808 = $692.00

In addition to the $3,000 earned as overtime in the four week period, the person also receives a further $692 purely by taking annual holidays immediately after the high level of overtime was worked. If they had taken holidays more than four weeks after the overtime was earned, they would have received no advantage.

This shows the impact of the current use of the better of the 4 or 52 week average rates.

Example 21

Salary = $52,000

Hourly Rate = $52,000 / 2080 = $25 per hour

This example is a more extreme situation where the person works without additional earnings for 48 weeks of the year. They then work the next 4 weeks with high overtime of 20 hours per week for the next 4 weeks. This may be an example where there is a shutdown at their workplace, and they work high overtime with maintenance during that period. They are paid T1.5 for the overtime.

Their earnings for the overtime period =

4 weeks x 40 hours/week x $25 per hour + 4 x 20 hours/week x 1.5 x $25 =

$4,000 + $3,000 = $7,000

The standard hours in this period = 4 weeks x 40 hours = 160 hours.

Ordinary weekly pay as an hourly rate = $7,000 / 160 = $43.75 per hour.

The employee then takes a well earned break and takes 2 weeks' annual holidays.

His leave pay = 2 x 40 hours x $43.75 = $3,500

If the 52 week average rate was used, then the average hourly rate would be =

48 weeks x 40 hours/week x $25/hour + 4 weeks x 40 hours/week x $25 per hour + 4 x

20 hours/week x 1.5 x $25 = $48,000 + $4,000 + $3,000 = $55,000

The standard hours in this period = 2080

The hourly rate = $55,000 / 2080 = $26.44 per hour

His leave pay = 2 x 40 hours x $26.44 = $2,115.38

The difference in the value of his leave between the two pay calculations

= $3,500 - $2,115.38 = $1,384.61

In addition to the $3,000 earned as overtime, the person also receives a further $1,384 purely by taking annual holidays immediately after the overtime was worked. If they had taken holidays more than 4 weeks after the overtime was earned, they would have received no advantage.

This shows the impact of the current use of the better of the 4 or 52 week average rates.

Contractual and actual hours in the calculation of standard rates

Below describes the impact and differences of using the different time worked figures to establish the standard rate to be used for paying leave.

The proposed calculation of the average rate to pay for leave is based on the Standard Rate calculation.

The denominator should be the contractual hours that a person was contracted to work in the last 52 weeks in which the gross earnings are earned. An alternative proposal is to use the actual hours worked, including overtime. This note discusses these alternatives.

Example 22

A person works the following work pattern of contractual time. An hour's non contractual overtime is worked after each shift.

Monday 3 hours

Tuesday 10 hours

Wednesday 9 hours

Thursday 10 hours

Friday 8 hours

Saturday RDO

Sunday RDO

Total 40 hours per week

Remuneration

Standard hours	= 40 per week, 2080 per year
Annual Salary	= $52,000 for 2080 hours of work per year = $25.00 per hour pay rate
Overtime worked each week Total hours worked + leave Overtime payments in previous 52 weeks	= 5 hours per week, every week. = 45 x 52 = 2340 = 5 x 1.5 x 25.00 x 52 = $9,750
Total payments in previous 52 weeks	= $61,750
Standard Rate using contractual hours	= $61,750 / 2080 = $29.68 per contractual hour
Standard Rate using actual hours	= $61,750 / 2340 = $26.39 per actual hour

Annual holidays

If the person takes one week's annual holiday, then using the contractual hours, the person would receive:

40 hours x $29.68 = $1,187.20

This is equivalent to what the person would have earned had they worked the week (including the overtime (40 hours x $25.00 + 5 x 1.5 x 25.00 = $1,187.00))

The advantage with this option is that the number of hours to be paid in the holiday period is predictable. The person works 40 contractual hours per week and the rate that is applied takes into account the earnings from the overtime in the previous 52 weeks.

If the actual hours were used, then the person would receive:

45 hours x $26.39 = $1187.55

This is the same amount as under the other calculation when the actual hours are used to determine the rate, and the number of hours of leave to be paid. This option is less attractive, as in normal situations the amount of overtime that a person would have worked had they not been on holidays is difficult to predict.

The third option is that the actual hours are used to determine the rate ($26.39 per hour in this example), but that the contractual hours are used to determine the time in the leave event. This results in a reduced payment:

Payment for one week's annual holiday = 40 hours x $26.39 = $1,055.60

The difference = $1,187.20 - $1,055.60 = $131.60 for one week's annual holiday.

This approach is not logical given that different units of time are used for the calculation.

Using the contractual hours is the easiest option, because the time that a person is absent on holidays is known and is predictable. This allows the leave pay calculations to be automated and avoids needing to determine the actual number of hours that would have been worked in the period of absence. This approach is equitable in that the payment reflects the historical earnings and pay rates.

Standard Rates for salaried employees

Example 23

Peter has 3 full-time (2000 hrs) solicitors working for him each of whom is paid $100,000. David bills 2500 hours, Bernard in on target and bills 2000 hours, Andrew bills 1000 hours.

If Standard Rate = Gross Earnings in last 52 weeks ÷ contractual hours worked to earn these earnings, then each has a different standard hourly rate:

David - $40

Bernard - $50

Andrew - $100

Now, that would be ok if annual holidays were paid out on the basis of hours actually worked. The number of hours in David's day (10 hours) is longer that Bernard's (8 hours) and longer than Andrew's (4 hours).  If paid on the basis of actual hours worked on the day, each would receive the same amount for a day ($400) or week.

But we do not want to do that because trying to work out the hours which would have been worked on the day of the leave event creates a problem - variable hours problem.

Instead we want to pay a rate based on the contracted hours to be worked on the day.  So David, Bernard and Andrew are all contracted to work 2000 hrs. They might work more or less in the year or more or less than the average on any day. But they are contracted to work Monday to Friday, 9am to 5pm, or 8 hours per day.

So the formula is:

Standard Rate  = Gross Earnings in last 52 weeks ÷  hours contracted to work in last 52 weeks to earn these earnings (whether or not worked)

The Standard Rate for David, Bernard and Andrew would be the same $100,000 ÷ 2000 = $50.

Every leave event would be the same i.e. one day is 8 hours and paid at $400.

Piece rate workers

Example 24

Bill has a job breaking down wooden pallets that are used to deliver bales of waste to a pulp mill. He only works when pallets arrive, and is paid $22 gross for each one. Tax is deducted by the employer. Typically, he works on at least 3 days of each week, but the actual days vary considerably and the number of hours on each occasion is dictated by the pallets he has to break down.

Because he is not contracted to work specific hours, hours worked are not material to the calculation of holiday pay, and because his hours are not defined in his employment agreement, nor are his hours regular in practice, Bill is paid as a pay as you go worker. His gross earnings each week are increased by 8% as the holiday pay component of his pay.

Example 25

Darren is a piece rate worker. He works Monday to Friday, 8 to 5, making up long lines for fishing boats. His standard (contractual) hours are 2080 per year. He is paid $70 for each completed line and completes 4 each day.

Darren did not take any leave in the previous 52 weeks, and observed 9 public holidays (he didn't work any public holidays and two public holidays fell on the weekends, so they were unpaid).

Darren worked 5 x 52 weeks = 260 working days in the year. Assuming that the observed public holidays were paid at RDP of $280 per day (the same as a normal working day)

His earnings were 260 x $70 x 4 = $72,800

Darren wants to take 3 days of annual holidays. His standard rate = $72,800 / 2080 = $35 per hour.

The holiday is 3 days x 8 hours per day x $35 per hour = $840

His daily standard rate = $35 x 8 hours = $280.00

Commission worker

Example 26

Lynley is a car sales person. She works at a car yard on a roster of 10 days on and 3 days off. Her contractual hours of work are (365/13) x 10 x 8 = 2,246 hours per year.

Lynley is paid a $30,000 retainer, plus a commission of $150 on every car that she sells. Lynley sells an average of 10 cars per month. She has earned the same amount each month and has not received any other income from this role.

She has not taken any leave in the previous 52 weeks and has observed the public holidays that fell on working days. These were paid at the same rate as a normal working day, as there were no additional earnings.

Her gross earnings in the last 52 weeks therefore are $30,000 + (12 x 10 x $150) = $48,000

One day of leave is paid at:

($48,000 per year / 2,246 hours per year) x 8 hours = $170.97 per leave day.

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