Are you overpaying your team for annual leave?

Employees are one of the biggest costs, and the most important asset to a business, and annual holidays are a really important part of your teams health and wellbeing.  Ensuring your team are getting what they are entitled to is your responsibility as their employer.  If you don’t get it right, it can cause frustration for the employee, friction in the workplace and could land you in hot water with the Employment Relations Authority.

So how do you know they are getting paid correctly?

What are they entitled to?

Employees are entitled to four weeks leave per leave (that’s weeks, not days, or hours, but weeks).

You need to know what a week looks like every time an employee takes leave.  For those working regular days and hours, this can be easily determined.  For those whose work is irregular – not the same each week – then this can a lot harder to keep track of.

How much do they get paid?

Payment for annual leave is made by working out what their ordinary weekly pay is, and comparing it to their average weekly earnings.  The employee is paid at the higher of these two calculations.

If you don’t know what the ordinary weekly pay is due to an irregular work pattern, then the ordinary weekly pay is calculated using the last four weeks earnings and dividing it by 4.

A lot of payroll software gives you all three options at the time you are entering the leave, and you could inadvertently end up overpaying your team for their annual leave if the wrong ordinary weekly earnings calculation is used, or underpaying them if you select the wrong rate.

How do I get help?

Leave payments are such a massive topic for employers and payroll managers and extremely important to get right.   Other common questions we get asked are things like do we have to agree to cash up leave? What if they have a bereavement while on leave?  And can I just pay 8% of gross earnings?

Paying staff correctly for annual leave is just one of the core topics covered in depth in our upcoming Small Business Training Hub payroll training courses starting in the second week of August.     Employers are responsible for ensuring their staff are paid correctly, and this is why we have developed the Payroll Essentials training course, to ensure you have all of the information you need at your fingertips to do this important business function correctly.

All the information is here to find out more and register for the next intake.

If you have any questions let us know, or register for the course here:

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