Payroll – how do I work out leave entitlements..

Payroll OntrackpayrollTalking about payroll and leave entitlements causes people to run and hide and brings on headaches of gigantic proportions. How on earth is the average business owner meant to understand what their obligations are?  Confused?  I am not surprised!

Let me try and explain…

1. Annual leave accrues in weeks not hours

The Act provides two dimensions for annual leave – time and money. The time dimension, 4 weeks, accrues at the end of each year of service. The value dimension accrues each pay at a rate of 8% on liable earnings until your anniversary, at which time the 4 weeks accrues and takes on “weekly” value.

2. Sick leave accrues in days

Sick leave accruals begin with five days after six months of service and then a further five days after each year of service from that date. Accrual may be limited to 20 days.

3. Worked on a Public Holiday

Must be paid at penal (time+half) rates for the time actually worked if worked on that day. If you would normally work that day then you are entitled to accrue a whole day of alternative leave which you can take later, or have paid out after 12 months by agreement.
Days off for Public Holidays, Sick leave, Special leave and Alternative leave are all subject to Relevant Daily Pay (RDP) rules specified by the Holidays Act. If you would normally have worked that day, then you’re entitled to be paid “relevant daily pay”, being either of:

  1. The amount you would be paid had you been at work (the amount must include any potential overtime, productivity incentives etc and can be difficult to determine unless you have a fixed roster or agreed set hours), or
  2. An agreed daily rate – rare, but possible, or
  3. failing accurate determination from Option 1 and having no agreed rate, the average per day calculated on your liable gross earnings over the last 52 weeks, divided by the number of whole or part days worked or on paid leave during that period.
4. Can i cash up my annual leave?

Not as a rule, and not as a right. Annual Leave cannot be Cashed-Up without a written application from the Employee. Your employer does not need to approve or give a reason for declining any application, and their decision, to approve or decline the application, must also be in writing. An Employee may cash up to a maximum of one week of Annual Leave in any 12 month period.

5. Payment for leave taken

Annual leave must be paid out at best weekly value. Sick, Public, Alternative etc. are all subject to Relevant Daily Pay (RDP) rules.
Strictly speaking, annual leave only has a correct value at the time it is taken – because it’s best weekly value may change every pay period. When you take annual leave your payroll person compares your currently weekly value with your average over the last 52 weeks (imagine doing that manually every time someone wanted to take a day or week off). If you work really irregular hours, they may also consider your weekly average over the last 4 weeks. If you apply for 1 day off, and typically work a 5 day week, your day off will be worth 1/5th of a best value week – not what you would have earned for that day, and certainly not 8 hours at your normal pay rate! It wouldn’t be fair on your employer to only take annual leave on “high-value” days – it is fair to be paid based on weekly value. If you work a 4 day week, then your day off will be worth 1/4 of a week’s pay. Taking 1 hour of annual leave is hardly what the Holidays Act designers had in mind for a restful period of absence from work, however it’s important that you understand that the 1 hour will be interpreted as a proportion of a best value week – and may bear no resemblance to an ordinary hour at all.

6.  So, what happens to annual leave if your hours or earnings change and decrease?

Unlike the “instant increase” provided for by a new contract that provides more income, your annual leave weekly value diminishes quite slowly (it takes 52 weeks for the reduced value to take effect completely). If you have unused annual leave, and your contract conditions or hours of work are reduced, then it’s probably better for you if you take the remaining leave earlier to get most value from it – although the change in conditions may just be temporary, so you have to consider carefully. You also don’t want to be short of annual leave if your workplace closes down over Christmas, so be careful when deciding what to do. Consider this: Jo has gone from full-time, 40 hours per week, to part-time, 20 hours per week. if Jo takes 1 week annual leave shortly after the contract changes, the week off is worth around as much as the old weekly earnings – way more than a current week is worth.
Any clearer on the rules?  If not, then let the experts administer some pain medication and take care of it all for you.Payroll1

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