Calculating Holiday Pay – Don’t Get Caught Out

Bunnings NZ have announced it will back pay staff $11 million as part of its efforts to comply with the Holidays Act 2003.

Paying employees annual leave (or holiday pay) can sometimes be a confusing business, especially when the Holiday Act can be challenging to even understand in the first place. There’s been a number of businesses recently in the media who have been subject to a 2016 government report showing more than 24,000 people across New Zealand in both the public and private sector had been underpaid between $70 and $1800 each since 2012 – all because there are two main methods of calculating holiday pay.
According to the Holidays Act 2003, there are two ways to calculate holiday pay. The first is using the employee’s ordinary weekly pay (OWP) or contracted hours as at the beginning of their annual holiday entitlement, or the second is calculating the employee’s average weekly earnings (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday. Average weekly earnings is the employee’s gross earnings over the 12 months just before the end of the last payroll period before the annual holiday is taken, divided by 52. If an employment agreement has a specific rate for ordinary weekly pay, this rate must be compared with the actual ordinary weekly pay, and the greater of the two amounts must be used as the ordinary weekly pay rate.
There is a risk that employers who calculate holiday pay based on an employee’s ordinary weekly pay can get caught out if that person does variable hours, such as overtime, or they earn a commission on top of their wage or salary, or they earn other variable pay. Remember, the employee’s entitlement to annual holidays will be affected by any changes to their work pattern, i.e. the employee’s roster. When an employee is going to take annual holidays, the portion of the holidays entitlement being taken must be worked out, taking into account what a week means for that employee at the time the holiday is taken. If the employee’s work pattern is predictable this will generally be the same as the ‘week’ agreed for establishing the employee’s entitlement.

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