Calculating Holiday Pay

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Calculating-Holiday-Pay

The Holidays Act 2003 promotes a healthy balance of work and life for employees in New Zealand. The Act sets out the minimum entitlements provided to employees which include:

  • Annual leave to give all employees the opportunity of rest and leisure for at least four weeks of paid annual holidays
  • Public holidays to give employees the chance to observe days of religious, national or cultural importance
  • Sick leave and bereavement leave to assist employees who are unable to attend work due to certain personal circumstances

The amount of holiday pay a New Zealand employee receives must be calculated each time the employee goes on holiday. This is because the rate of pay might change between payment periods.

How to calculate holiday pay

Whether an employee takes all or part of their annual holidays, the way to calculate holiday pay is the same.

The greater amount of either below calculations is what the employee should receive:

  • The employee’s ordinary weekly pay (OWP) at the start of the annual holiday
  • The employee’s average weekly earnings (AWE) from the last 12 months. Before the last payment period ended, and before the start of the last annual holiday.

If an employee decides to cash out their annual leave entitlements, it is known as an ‘annual leave cash up‘. The employer must pay the employee the amount that they would have received if they had taken the leave, including any relevant bonuses or allowances.

To calculate an employee’s OWP, it must include the total amount of an employee’s ordinary weekly pay, along with extra payments such as commissions, overtime and allowances.

To calculate an employee’s average weekly earnings, the employer must calculate their gross earnings over the 12-month period before the end of the last pay period, and then divide this figure by 52. If the employee is entitled to extras such as salary and wages, allowances, overtime, performance payments or commissions, these must be included in the total amount.

Calculating holiday pay at the end of employment

Whether an employee resigns, retires, completes a fixed term, is made redundant or dismissed – they are entitled to their final wages and any unused annual leave entitlements. This amount is collated into the employee’s final payment period.

In some circumstances, an employee may be entitled to receive public holiday pay in New Zealand for a period after the employment has ended.

Before 12 months of working for the same employer

In this case, the employee has not worked long enough to be entitled to annual leave. However, they are entitled to an annual leave payment equal to 8% of their gross earnings during the employment period.

After 12 months of working for the same employer

In this case, the employer must do two different calculations to work out their total annual leave payment:

  • If the employee is entitled to any annual leave, they get paid the greater amount of either their ordinary weekly pay or average weekly earnings.
  • If the employee has been accruing annual leave, but is not yet entitled to them, the employee is paid 8% of their gross earnings from the period when they last received the entitlement.

Any annual leave already taken or cashed out are not to be included in the final amount.

For advice on how to calculate holiday pay in and for more information on the Holidays Act 2003, contact Employsure on 0800 568 012.

Frequently Asked Questions

  • How do you calculate holiday pay for hourly paid staff?

    For an employee who takes all or part of their annual holiday entitlement, the annual holidays are paid at least at the greater amount of:

    • Ordinary weekly (OWP) as at the beginning of the annual holiday.
    • The employee’s average weekly earnings (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday. 

     

     

  • How to work out holiday pay for casual workers?

    The employee and employer can agree that an extra 8% will be paid on top of their wages or salary instead of taking annual holidays. 

  • How to calculate holiday pay for part time employees?

    Annual holidays for all employees (full-time or part-time) are paid at the rate of the greater of ordinary weekly pay and average weekly earnings. 

  • When can an employee use paid holiday?

    The Holidays Act specifies that annual leave must be taken at a time mutually agreed between employer and employee. You may have a leave policy that requires a certain amount of notice prior to the leave being taken. This means that you can plan your roster and make sure your business is not left short staffed. 

    If you have a leave policy that requires a certain amount of notice prior to leave being taken, you may also consider each request case-by-case on a basis of good faith. 

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