This article is for businesses created before 3rd October 2019.
Because the payroll system uses hours to calculate leave accrual it is important to be able to understand how the Standard Week and Standard Day accrual methods work for each employee. These methods are defined here.
After setting up your business, you will see that you are provided with a set of default leave categories to represent the common leave types in New Zealand. There are 2 default leave categories that deal with annual holiday leave:
- Annual Holiday Accrual: this represents the holiday leave that accrues within each 12 month period, prior to the entitlement date (being the employee's 12 month anniversary date). This leave category is not to be used by employees when taking leave - this is why we have made it unavailable in the default Leave Allowance Templates provided. Rather, this leave category is simply a "holding mechanism" for accrued leave that then needs to be transferred to the "Annual Holiday Leave" leave category once the employee reaches their entitlement period (ie their 12 month anniversary).
- Annual Holiday Leave: this represents the holiday leave entitlement that kicks in upon the employee's entitlement period. When employees want to submit a leave request, this is the leave category they must use.
Standard Allowances for annual holiday leave categories
Firstly, we draw your attention to the configuration of both default leave categories:
Annual Holiday Leave
You will note that we have not enabled this leave category to automatically accrue. This is because the accrual is done via the "Annual Holiday Accrual" leave category. Once the employee has reached their entitlement period, the user needs to transfer the accrual amount into this leave category. Instructions on how to do this are further below in the "Transferring accrued leave to entitled leave" section.
Annual Holiday Accrual
You will note here that the standard allowance has been configured as 0 Standard Weeks per Year. This is intentional; the reason being is to avoid employees incorrectly accruing leave if they're not entitled to leave. The correct standard allowance has been configured in the default leave allowance templates and we strongly suggest these are assigned to all employees to ensure leave accrues correctly from their first pay run. Both the 'First 6 mths of employment' and 'Thereafter' leave allowance template have the following standard allowance set up for annual holiday accrual:
As stated in the first paragraph of this article, leave is accrued. So, to convert 4 standard weeks in hours you need to revert back to what the employee's standard hours per week are (in the employee's Pay Run Defaults screen). For example, if an employee works 20 hours per week, the equivalent accrual in hours on a per pay run basis is as follows:
If an employee works 30 hours per week, the equivalent accrual in hours on a per pay run basis is as follows:
If, in the employee's Pay Run Defaults screen you have stated the employee works "0" hours per week, the employee will not accrue any Annual Holiday in the pay run.
Annual Holiday Accrual will start accruing from the employee's first pay run so long as the employee has been assigned to a default leave allowance template, or a custom leave allowance template that sets leave accruals, or you have added a standard allowance to the "Annual Holiday Accrual" leave category from the employee's Leave Allowances page.
Transferring accrued leave to entitled leave
As per the Holiday Act 2003, employees are entitled to 4 weeks of annual holidays after 12 months of continuous employment with their employer and then after every following 12 months of employment.
On the anniversary of each employee, you will be required to transfer the accrual balance from the Annual holiday Accrual leave category across to the employee's Annual Holiday Leave leave category. The best way to do this is via the pay run. In order to know which employee's accrual needs to be transferred, you will need to know when the employee has reached their entitlement period. This is easily identified within the pay run via the "Warnings" tab:
When you click on the "Warnings" tab, there will be a notification for any employee who has reached their annual anniversary, for example:
The employee(s) listed under this notification will be those who will need their leave transferred.
Using the employee above, we will run through an example of how to transfer the leave across from one leave category to the other.
Betty Davis gets paid fortnightly and the pay period currently being processed is 8/14/19 to 21/4/19. Along with the standard hours paid to Betty per pay, we will also transfer her leave. First thing to look at is Betty's current leave balances. To view this, click on "Leave Balances" within Betty's pay:
Betty already has 40 hours of annual holiday entitlement from previous entitlement periods and now we need to transfer 100 hours of annual holiday accrual. The 3.85 hours accrued in this pay run will remain in the Annual Holiday Accrual balance as this is the start of the new accrual for the next 12 month period.
There are two actions required to undertake the transfer:
Click on Actions > Accrue Leave > Select the "Annual Holiday Leave" leave category from the drop down list in the Leave Accrued section > you can enter a note to keep a record of the purpose of this transfer > then, enter the number of hours being transferred, ie '100'.
Click on Actions > Adjust Leave > Select the "Annual Holiday Accrual" leave category from the drop down list in the Leave Adjustments section > you can enter a note to keep a record of the purpose of this transfer > untick "Apply Earnings Rules" > then, enter the number of hours you want to deduct as a negative number, ie '-100'.
Clicking on her leave balances will show you the update following the transfer:
Employee's standard weekly hours change mid entitlement period
The Holiday Act 2003 requires that the employer and employee determine an employee’s entitlement to annual holidays based on what genuinely constitutes a week for each employee. The employee’s entitlement to annual holidays will be affected by any changes to their work pattern. If there are changes, it is essential that the employee and employer have a discussion in good faith about the impact on annual holidays, agree ‘what is a week’ under the new work pattern and what the impact is on existing accruals.
As previously stated, the system calculates the employee's annual holiday accrual, on a per pay run basis, based on the weekly hours stated in the employee's Pay Run Defaults screen. If the employee's weekly work pattern changes during the 'accrual period' the accrual per pay period will also change. The change will most probably also require an adjustment to the amount already accrued - this adjustment can be made immediately in the pay run.
Using an example, Daniel Rossie, who was employed on 2/3/2018 used to work 15 hours a week. This means he has an accrual balance of 4.61 hours as two fortnightly pay runs were processed after his 12 month anniversary. Daniel has now been contracted to work 30 hours a week which means his defined work week for purposes of taking leave is a 30 hour week. As such we need to adjust the current accrued balance to reflect a 30 hour week, as opposed to a 15 hour week. To do this in the pay run, click on Actions > Accrue Leave (because we are adding to the balance) > Select the "Annual Holiday Accrual" leave category from the drop down list in the Leave Accrued section > you can enter a note to keep a record of the purpose of this change > then, enter the number of hours being added, ie '4.61'.
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