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How does Employment Hero Payroll comply with the Holidays Act 2003 | Payroll Guide

Updated

Employment New Zealand has provided some guidelines on assessing the payroll platform and how it follows the Holidays Act 2003. We have broken this article into the following key sections:

Annual holidays entitlements

Employees are entitled to four weeks' annual holidays each year; after working continuously for 12 months, it is important to take into account work patterns.

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Employment Hero Payroll uses leave allowance templates which will help make managing leave for employees easier. By default, when the you assigned the leave allowance template called Standard Entitlement, it would give the employees four standard weeks of annual holidays after employees have worked for 12 months and every following 12 months.

For employees that do not have a set work pattern and still accrues four weeks of leave, we can only determine a week at the time they take annual holiday leave. It is MBIE’s view that the employer and employee should first try to identify whether there is a pattern of work. If you genuinely cannot establish a work pattern , then you can consider using the days and hours the employee worked in the weeks leading up to the holiday.

In this instance, our payroll platform allows the setting-up of a review period which averages over a given number of weeks (between 2 - 8 weeks) for employees with irregular work hours, considering either the advanced work pattern hours or the hours worked through submission of timesheets. You can find more information on the leave entitlements configuration for Irregular Hours employees here.

Paid annual holidays as pay-as-you-go

Employees become entitled to annual holidays in the usual way if they have been receiving annual holidays on a pay-as-you-go basis and then later no longer qualify for pay-as-you-go because of work pattern changes or extension of a fixed-term employment agreement.

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You will need to assign casual employees or employees on a fixed-term contract of less than 12 months, to the Irregular Employment leave allowance template. You also need to set employees with the Casual employment type to activate the 8% annual holiday pay as you go.

Moving the anniversary/ entitlement date for annual holidays

Only in the following two circumstances can the employee’s anniversary date be moved:

  • Close down period
  • Continuous period of leave without

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If an employee takes a continuous period of annual holidays without pay for more than one week, their anniversary date for entitlement to annual holidays moves out by the amount of unpaid leave taken. Or the employer can agree with the employee that their anniversary date for annual holiday entitlement will not change. If they agree to this, the employer must also reduce the divisor for calculating average weekly earnings for annual holidays by the number of weeks or part weeks greater than one week that the employee was on leave without pay.

Within the Employee File Leave Allowance page, there is an Unpaid Annual Holidays field. You can choose either Move Anniversary Date option or the Reduce AWE Divisor option. Please refer to this article for more information on Leave Without Pay - Annual Holidays.

Public holidays

11 public holidays each year

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The 11 public holidays listed by the government and Regional Anniversary Dates are set up as System Public Holidays for each calendar year.

Transferring public holidays

If a public holiday falls on a weekend day that is not an otherwise working day for an employee, you must move the public holiday to the following Monday for that employee (or Tuesday if a public holiday over the Christmas and New Year period falls on a Sunday).

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The platform will automatically refer to an employee’s earning lines in previous pay runs to determine if the public holiday was an otherwise working day for the employee. Where an employee does not have a clear and set work pattern or there is a lot of variation in the employee's work pattern and determining if a day is an otherwise working day would be hard. Employers can define a minimum period of time (weeks) in which they undertake an assessment to determine how often, in that period of time, the employee worked on that specific day each week.

Alternative holidays

Receives alternative holidays for working on public holiday

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When employees work on Public Holidays, they will be required to assign the Public Holiday Worked work type to timesheets. It will trigger the platform pay category that pays a 50% penalty rate loading on default. You can change this if a business pays their employees a different penalty loading. The platform will also automatically accrue one day of alternative holiday leave. For more information on Public holiday entitlements and otherwise working days: general overview, please click here.

Sick and bereavement leave entitlements

  • Receives at least five days of sick leave after six months current continuous employment
  • Access to bereavement leave.
  • Over a period of six months, they have worked for the employer for an average of at least ten hours per week, including no less than 40 hours in every month or one hour in every week.
  • At the end of six months, an employee receives sick and bereavement leave entitlement for the next 12 months
  • Carry over up to 15 days unused sick leave, with a maximum of 20 days in any year

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Employees are entitled to 10 days of sick leave as per the Holidays (Increasing Sick Leave) Amendment Bill, effective from 24th July 2021, and carry over up to 10 days unused sick leave, with a maximum of 20 days in any year.  We explain the default platform configuration for sick leave entitlement in this article.

Employees on a casual employment agreement

Just because an employee is called casual by the employer or is employed under a casual employment agreement. Does not automatically mean that they will not be entitled to paid public holidays, alternative holidays, and sick and bereavement leave. Just because an employee is on a casual employment agreement does not mean that they can automatically be paid holiday pay with their regular pay (PAYG) .

If the work pattern changes to become regular, the employee will not qualify for pay-as-you-go holiday pay and must move to receiving four weeks’ paid annual holiday. The decision must be made by the employer, not the payroll platform.

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The platform will not automatically change the employee’s entitlements if their work pattern changes, as employees would need to have met the relevant tests. It would be dependent on the employer to update the employee’s profile, including their pay details and leave entitlements in the payroll platform.

Payment rates

  • Annual Holidays: Greater of ordinary weekly pay or average weekly pay
  • Bereavement leave, alternative holidays, unworked public holidays, sick leave: At the rate of relevant daily pay or average daily pay

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All Leave Pay Rate settings are configurable in our payroll platform, and are explained in this article.

  • You should use the Relevant Daily Pay (RDP) (default setting) or Average Daily Pay (ADP) calculation method when calculating daily-based leave such as Bereavement leave, Alternative leave, Public Holidays, Domestic Violence leave and Sick leave.
  • For annual holidays, OWP calculation method of OWP agreed rate (default setting) or OWP four weekly pay formula is used for calculating the greater of ordinary weekly pay (OWP) and average weekly earnings (AWE) for annual holidays.

Annual holidays - parental leave

In the case of annual holidays that an employee becomes entitled to during parental leave (or the parental leave preference period) check that the payroll systems pays can be configured so that these holidays can be paid at the rate of the employee’s average weekly earnings for the 12 months immediately before the end of the past pay period before the annual holiday is taken (or paid out).

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When employees are on parental leave; and the employee becomes entitled to annual holidays during parental leave, or within 12 months from when they return to work, only the average weekly earnings (AWE) rate is to apply, with no comparison to the ordinary weekly pay (OWP) rate. We explain this in further detail here.

Annual holidays paid out

Check that if you accept requests from employees to pay out a portion of their annual holidays, the payroll platform can correctly pay and deduct the correct amount from the employee’s annual holidays balance. The platform (or the employer) must check that the employee does not have more than one week of the employee’s legislative minimum annual holiday paid out in each entitlement year. The employee request also needs to be recorded.

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We have provided detailed steps on how you cash out annual holidays using the annual holiday entitlement in the following article.

Worked public holidays

Check that the payroll platform compares time and a half x relevant daily pay (not including penal rates) and relevant daily pay (including penal rates) and pays the greater amount.

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Within a pay run, when earning lines are generated for public holiday hours worked, we will show a context panel explaining how we calculated ‌the rate. For more information on the public holiday context panel, refer to this article.

Formulas and definitions

We have covered the formulas and definitions listed on page 10 to page 13 in the above sections. In summary, these are:

  • Payroll platform identifies what an otherwise working day is for each employee with a consistent work pattern.
  • Payroll platform correctly includes or excludes payments, in gross earnings.
  • You can configure the payroll platform to include all relevant payments and correctly determine ordinary weekly pay.
  • You work out the average weekly earnings by calculating the employee’s gross earnings over the 12 months before the end of the last payroll period before they take their annual holiday leave, and dividing that figure by 52.
  • Payroll platform calculates average daily pay using the formula of a/b where: a is the employee’s gross earnings for the 52 calendar weeks before the end of the pay period immediately before the calculation takes place; and b is the number of whole or part days during which the employee earned those gross earnings, including any day on which the employee was on a paid holiday or paid leave; but excluding any other day on which the employee did not‌ work.
  • Relevant daily pay means paying an employee what they would have received if they were at work on the day.
  • A penal rate is an additional amount that the employer and employee agree will be paid to the employee for working on a particular day or type of day.

Recording employee work patterns and pay

The law requires employers to keep accurate wages and time and holiday and leave records for each employee. It includes a record of the days worked, the hours worked each day (including overtime worked on each day) and the pay received for those hours.

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Our payroll platform provides all the tools to make sure employers can keep accurate records of employees wages and time worked.

For more information on leave overview, including applying and managing leave request, please click here.

For more information on timesheets overview, including creating and managing timesheets, please click here.

For more information on how pay slips look like in the payroll platform, please click here.

Paying entitlements on termination

Payroll must be set up to pay all relevant entitlements on termination of employment. It includes, for example: annual holidays, public holidays, notional public holidays, and unused alternative holidays.

Any unused alternative holidays must be paid at the rate of the employee’s relevant daily pay (or average daily pay) for their last day of employment; in the pay that relates to the employee’s final period of employment.

Any part-year worked must be paid at the rate of 8% of gross earnings for that part of the year, minus any annual holidays taken in advance or cashed up. Most other payments to employees in addition to wages and salaries, including allowances and bonuses, must be included in gross earnings for calculating the 8%. It is important to check which of these payments need to be included.

When terminating an employee via a pay run, any leave category setup to be paid out on termination will automatically be calculated as part of the termination pay. For more information on terminating an employee, click here.

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