Updating the current leave configuration of your business

This article is only relevant to businesses that were created before 3 October 2019.

This article will provide detailed instructions on how to update your existing business and employee leave settings so they are in line with the new default leave settings. The new settings remove the requirement for any ongoing manual handling of employee settings and leave balances and improves  compliance by:

• using a weeks per year entitlement method for annual holidays, as opposed to an hourly accrual; and
• using a days per year entitlement method for sick leave, bereavement leave, alternative holiday leave and domestic violence leave, as opposed to an hourly accrual.

We have broken down the instructions into the following components: 

1. Configuring employee daily hours;
2. Converting leave balances from hours to days/weeks;
3. Updating default business leave settings.

Please ensure all pay runs are in a finalised state before completing any of the instructions  below.

Configuring employee daily hours

In order to correctly determine average daily pay vs relevant daily pay when processing sick, bereavement, domestic violence or alternative holiday leave taken, we have added a new employee setting in the employee's Pay Run Defaults screen - daily hours. Employees who do not have advanced work hours set up or whose daily hours vary from that of the business daily hours should take advantage of configuring this field. You can bulk update employee daily hours by exporting the employee extract, entering the value in column 'AR' HoursPerDay and then importing back in the platform. As stated above, only enter a field in this column for an employee who does not have advanced work hours configured or whose daily hours vary from the business' standard hours per day set up in the business' Details screen.

You can perform this action individually as the first step of this process or as part of step 3 within the next component where employee data is required to be updated using the employee export/import file.

Converting leave balances from hours to days/weeks

Step 1: Determine current leave balances for existing employees

This is required in order to complete step 2. To obtain the leave balances, generate a Leave Balances Report as at the last finalised pay date. The report will show the employees' leave balances in hours:

The balances for Sick Leave, Domestic Violence Leave and Alternative Holiday Leave will need to be converted to the equivalent “Days” and Annual Holidays converted to the “Weeks” equivalent. The formula to work out the days and weeks conversion is as follows: 

For Days:

Total hours divided by the employee's hours per day. For eg, an employee works 8 hours per day. Leave balance for Sick Leave shows as 32 hours. The hours to days conversion will be calculated as 32 / 8 = 4 days. 

For Weeks:

Total hours divided by the employee's hours per week. For eg, an employee works 40 hours per week. Leave balance for Annual Holidays shows as 120 hours. The hours to weeks conversion will be calculated as 120 / 40 = 3 weeks.

As per the example above, we recommend that you input the days and weeks conversion within the leave balance excel report to refer to when you complete the leave adjustments for each employee.

Please note:

• When calculating the conversion, ensure the maximum sick leave balance for an employee is 20 days;
• When calculating the conversion, ensure the maximum domestic violence leave balance is 10 days;
• If any rounding is required, we recommend that you round the leave up to the nearest whole number;
• There is no conversion required for the “Annual Holiday Accrual” leave category. The Annual Holiday Accrual leave category will no longer be required (discussed further in the "Updating default business leave settings" section) as part of this update process.

Step 2: Process pay run to zero out existing leave balances

The purpose of this step is to remove all leave balances currently stated in hours that rather need to be stated in days or week. Don’t worry, another pay run will be completed to add the employees' leave balances back in the equivalent days/week units.  

To complete this step, create a new adhoc pay run for each pay schedule (DO NOT use your normal pay schedule which you use to pay your employees - refer to important note below), setting the pay period ending date 1 day after your previous pay period ending date and ensure the "Create pay run with empty pays" checkbox is ticked.

IMPORTANT - ensure it is a new adhoc pay run as using your normal pay run schedule (i.e. the usual pay schedule you use to pay your employees) will impact your future leave liability and leave calculations. 

For each employee, reverse the leave balances by completing the following steps:

• Click on Actions >  Adjust Leave;
• Select the relevant leave category;
• Enter a comment to explain the reason for the adjustment (optional);
• Untick the "Apply Earnings Rules" checkbox;
• Refer to the Leave Balances Report, enter the leave balance hours as shown in the report as an opposite amount i.e. if negative, enter in as a positive amount, if positive, enter in as a negative amount;
• Repeat the above for each leave category that needs to be reversed. 

Prior to finalising the pay run, you can check the employee leave balances are now set at 0 by clicking on the "Leave Balances" button (to the left of the “Actions” button) within the employee’s expanded view. Alternatively, once the pay run has been finalised, you can generate a leave balances report to check the updated leave balances. If further adjustments are required, simply unlock the pay run and adjust the negative leave balance to the correct amount.

Once all leave adjustments have been entered, finalise the pay run. Ensure the pay slips for this pay run are not published as this is merely an adjustment to leave.

Step 3: Assign "Leave Entitlement Migration" leave allowance template (LAT) to existing employees 

The purpose of this step is to ensure, moving forward, that employee balances are stated in the correct unit types, the leave entitlement kicks in automatically upon the anniversary date and no manual intervention is required to change the employee LATs after 6 months of employment. 

This step can be completed on an individual employee basis or in bulk.

At an individual employee level, navigate to the employee's Leave Allowances screen > select the "Leave Entitlement Migration" LAT from the "Apply the following Leave Allowances Template" dropdown > set “Leave Year to start on” to “Employee’s Start Date” > click on "Save".

Alternatively, you can complete this step in bulk using the employee import/export template. Once you have exported the employee file:

1. In column ‘AT’ LeaveTemplate, update value to ‘Leave Entitlement Migration';
2. In column ‘BZ’ LeaveAccuralStartDateType, update to ‘EmployeeStartDate’.

If you have chosen this option, you can at this time also complete the first component specified above relating to employee daily hours. 

Please note: the “Leave Entitlement Migration” LAT only needs to be applied to existing employees. It does not need to be applied to any new employee going forward provided that the business leave category settings are updated (details provided below - Updating default business leave settings). Once the leave category settings are updated as per our instructions, the system will automatically apply the correct leave settings to all new employees. 

Leave Entitlement Migration LAT settings explained

• Annual Holidays: As per the Holiday Act 2003, an employee is entitled to not less than 4 weeks’ paid annual holidays after the end of each completed 12 months of continuous employment. As such, the leave category is set up as 4 standard weeks per year based on the employee’s leave year with the leave entitlement to start after 12 months of employment i.e. 12 month anniversary date. Annual holidays will accrue in advance (on the anniversary date) with a maximum of 4 weeks for each leave year and the entire balance will carry over to the employee’s leave balance.        
• Sick Leave: An employee is entitled to 5 days paid sick leave commencing from six months after their employment start date. Additionally, the entitlement continues every 12 months thereafter. To clarify, it is 12 months beginning at the end of the 6 month period and not from employee's start date. As such, the leave category is set up as 5 standard days per year based on the employee’s leave year with the leave entitlement to start after 6 months of employment. The system will automatically then apply sick leave entitlement every 12 months thereafter. Sick leave will accrue in advance with a maximum of 5 days for each leave year and will only a carry over a maximum of 20 days (carry over amount is in addition to the leave accrued balance for the leave year i.e. 15 days carry over + the 5 days accrued for leave year = 20 days).                      
  
• Domestic Violence Leave: An employee is entitled to 10 days paid domestic violence leave commencing from six months after their employment start date. Additionally, the entitlement will reset every 12 months thereafter. As such, the leave category is set up as 10 standard days per year based on the employee’s leave year with the leave entitlement to start after 6 months of employment. The system will automatically then apply domestic violence leave entitlement every 12 months thereafter (from the 6 month anniversary, not the employee's start date). Domestic violence leave will accrue in advance with a maximum of 10 days for each leave year but no balance will carry over to the next year. This means the leave balance will remain at 10 days or be topped up to 10 days upon each leave year.                                                                                      
• Alternative Holiday Leave: An employee gets an alternative holiday if they work on a public holiday that would otherwise be a working day for them. An alternative holiday gives the employee a day off at another time. For alternative holiday leave, the unit type is set as 'Days'.

Step 4: Process pay run to add converted employee leave balances

The purpose of this step is to add back the employees' leave balances but in the converted days/weeks format. Refer to the Leave Balances excel report you generated during step 1 that also includes the days and weeks conversion calculation.

As per step 2, create an adhoc pay run (same one used in step 2) for each pay schedule (REMEMBER, DO NOT use your normal pay schedule that you use to pay your employees - refer to important note below), setting the pay period end date as your current pay period date and ensure the "Create pay run with empty pays" checkbox is ticked.

IMPORTANT - ensure it is a new adhoc pay run as using your normal pay run schedule (i.e. the usual pay schedule you use to pay your employees) will impact your future leave liability and leave calculations. 

For each employee, add the leave balances by completing the following steps:

• Click on Actions >  Accrue Leave;
• Select the relevant leave category;
• Enter a comment to explain the reason for the adjustment (optional);
• Enter the converted leave balance amount;
• Repeat the above for each leave category that needs to be reversed. 

Once all leave accruals have been entered, finalise the pay run. Ensure the pay slips for this pay run are not published as this is merely an adjustment to leave.

Please note: Moving forward, leave accrual will no longer show per pay run as there is no such concept of this in New Zealand. Leave entitlement will only accrue at the employee’s anniversary date. For sick leave and domestic violence leave, this will initially occur upon the employee’s 6 month anniversary and then every 12 months thereafter. For annual holidays, this will occur upon the employee's 12 month anniversary and every 12 months thereafter.

Updating default business leave settings

Once completing the above processes to update the settings for existing employees, a few more adjustments need to be made so that leave settings for new employees are working correctly. This relates to updating the business leave category settings by converting to the correct unit type. This will, in turn, mean that all new (non-irregular employment) employees will not need to be assigned a LAT as the default business leave category settings will automatically apply to them.

Leave categories

To update the leave categories, go to Payroll Settings > Leave Categories. We will now detail the process for each affected leave category and the update required.

Annual Holidays

Click on the leave category "Annual Holidays" to expand the setting details. Update the existing settings as follows:

Sick Leave

Click on the leave category "Sick Leave" to expand the setting details. Update the existing settings as follows:

Domestic Violence Leave

Click on the leave category "Domestic Violence Leave" to expand the setting details. Update the existing settings as follows:

Bereavement Leave

Click on the leave category "Bereavement Leave" to expand the setting details. You will notice a new setting "Unit type" has been added. Update the existing settings as follows:

Alternative Holiday Leave

Click on the leave category "Alternative Holiday Leave" to expand the setting details. You will notice a new setting "Unit type" has been added. Update the existing settings as follows:

Parental Leave

Click on the leave category "Parental Leave" to expand the setting details. You will notice a new setting "Unit type" has been added. Update the existing settings as follows:

Annual Holiday Accrual

The Annual Holiday Accrual leave category was not to be used by employees when taking leave and so was made unavailable in the original default leave allowance templates provided. This leave category was simply a "holding mechanism" for accrued leave that then needed to be transferred to the Annual Holidays leave category once the employee reached their entitlement period (ie their 12 month anniversary). As the system will now automatically apply the annual holidays entitlement at the employee’s 12 month anniversary date, this leave category is no longer required. 

We understand that the concept of accrued holidays is a useful tool for businesses in order to estimate the financial liability for annual holidays. It can also be useful for employees as an estimate of their progress towards becoming entitled to their four weeks annual holidays (at their anniversary date). However, the accrual of annual holidays is not a concept found in the Holidays Act 2003. For more information please refer to https://www.employment.govt.nz/leave-and-holidays/annual-holidays/taking-annual-holidays/.

Based on the above, we recommend that the Annual Holidays Accrual leave category be removed from the business. To remove this leave category, hover your mouse over the leave category so that the "x" icon appears. Clicking on this icon will delete the leave category. Please note, this action cannot be reversed once deletion is confirmed.   

Leave allowance templates (LATs)

At this stage, business leave category settings should have been updated as well as employee LAT settings. As such, the existing default LATs - "First 6 mths of employment" and "Thereafter" - are no longer required. The original purpose of those LATs was to ensure that sick leave and domestic violence leave entitlements only kicked in after 6 months of employment, whilst annual holidays continued accruing. As the leave category settings automate this process we no longer require the LATs or require any manual changing of LATs after 6 months of an employee's employment. 

To delete the two existing LATs, hover your mouse over each LAT so that the "x" icon appears. Clicking on this icon will delete the LAT. Please note, this action cannot be reversed once deletion is confirmed.   

Leave pay rates

A new setting - "Leave pay rates" - now exists in the employee's existing Pay Rates screen. The purpose of this setting is to configure the applicable calculation method applicable to daily based (ie bereavement leave, sick leave, alternative holiday leave, etc) and weekly based leave (ie annual holidays) specific to that employee. The default settings for each existing (and new employee) are as follows:

If the arrangement agreed between the employee and employer varies from the above scenario, you can update the setting accordingly. Specifically:

• RDP/ADP calculation method: The relevant daily pay setting caters towards the scenario of employees employed on a regular working pattern that, when they take leave, are to be paid the earnings they would have otherwise received had they been at work. The alternative scenario (ie average daily pay) caters towards employees where (a) their daily pay varies within a pay period and/or (b) their work patterns make it impossible to be able to calculate relevant daily pay.    
• OWP calculation method: The agreed rate setting caters towards the scenario of employees employed on a regular working pattern that, when they take leave, are to be paid the earnings they would have otherwise received had they been at work. The alternative scenario (ie 4 weekly pay) caters towards employees whose regular work pattern is hard to define or where it's not possible to define what a working week looks like in advance. For example, employees who only work if they choose to accept work when it is offered and have no guaranteed hours or employees who work to a roster but both their hours and days vary unpredictably each week.

A setting has also been added to the business settings in the Leave Categories screen for the number of days to use as the divisor for monthly and half monthly pay schedules. If you choose to use 12 months for monthly and half-monthly pay cycle ADP calculations, this will use the actual number of days in the 12 month period. If you choose to untick this setting, the system will use 52 weeks of days for the ADP calculations. As an example, if a monthly employee who works 5 days per week took sick leave in April 2022, when this setting is ticked the number of days used in the ADP calculation will be 261 because there is 261 actual work days from 1 April 2021 to 31 March 2022. If this setting was unticked, the days used in the ADP calculation will be 260 (5 days multiplied by 52 weeks = 260)

If you have any feedback or questions, please send an email to support@nzpayroll.co.nz.