Are you short paying Holiday Pay?

We have been inundated with employers asking the question as their employees have been asking them the question.

Last week we did an audit for one such business. The unpaid holiday pay on bonus and commissions for the last 7 years was in the region of 8% of $1,450,000 which equated to $116,000! The underpayment made our eyes water but the employees (and ex-employees) were happy.

Payroll software works out the annual leave rate for you. It is important the rate is adhered to and not changed. If you employee people who work on a roster (every week they work different days and hours) then it can be more tricky. We recommend employers in the hospitality industry have in writing the procedures they use and follow them. 

Your payroll program will work out this calculation for Annual Leave:

  1. Work out the weekly average of your employee’s total gross earnings by dividing the “total gross earnings” for the 12 months before the end of the last pay period before the annual holiday by 52. This gives the “average weekly earnings”.

    Note: “total gross earnings” means all salary, wages, overtime pay, allowances, commission, and any previous payments for holidays and leave in the period during which the earnings are being assessed.
  2. Then work out what the “ordinary weekly pay” is (as at the beginning of the annual holiday) by multiplying the ordinary hourly rate of pay by the number of hours the employee normally works each week. This gives the “ordinary weekly pay”.
  3. Whichever of these amounts is the LARGER becomes the rate of the weekly holiday pay.
  4. To get the daily or hourly rate, divide by the number of normal days or hours.

For other leave (Sick, Bereavement, Public holidays)..

Payment should be at the rate the employee would ordinarily be paid on the day leave is taken (relevant daily pay) or their average daily pay where applicable (see calculation above). For example, an employee who normally works eight hours Tuesday to Friday is sick on Tuesday, a payment of eight hours would be due under relevant daily pay.

Where the employee works continuously but to an irregular pattern, sick leave would be payable if the employee was rostered to work on the particular day leave is taken, or could have expected to be rostered. The sick leave would be paid at the employee’s relevant daily pay or average daily pay. Payment for sick leave is made in the normal pay cycle.

Lynley Averis

Lynley is an MYOB Certified Consultant & has been involved in training in New Zealand since 1985. She's written various accounting & MYOB workbooks including co-authoring “Bookkeeping for Dummies”. She has consulted on all versions of MYOB Accounting, Retail and Payroll over the past 18 years and has previously worked for MYOB. She currently consults to NZ businesses on all aspects of business systems - her mission for clients is for them to spend as little time as possible doing accounting!

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