With the Holidays Act, Two Rights Can Make a Wrong
December 9, 2014
I like a cup of tea and a couple of pieces of toast on weekend mornings; Vegemite and marmalade, preferably on Vogels. That’s Vegemite on one, marmalade on the other – not combined.
Annual Holiday Pay in the Holidays Act is a bit like a Vegemite and marmalade sandwich. Four weeks of annual holiday a year is a great. Paying out leave as 8% of earnings is fine. Combine the two together and things get confused.
This example from the Ministry of Business, Innovation & Employment shows the way an employee finishing employment gets a combination of annual holiday paid out if they had any left from previous full year entitlements, and 8% of their current year’s earnings.
That’s not how employees view their leave. Very few employees understand the breakdown of leave on their final pay. Many small business employers are similarly confused.
The two views of annual holidays are not even numerically equivalent: 4 weeks a year is 4/52 = 7.7%. So an employee who finishes just before their anniversary and receives a full year at 8% is getting more than an employee who just crosses their anniversary. On an annual income of $50,000 that means the employer is up for an additional $154 in a final pay.
The 12 month boundary when leave becomes due is largely meaningless – employers are usually happy for employees to take leave as it is accrued and would prefer not to have a large liability on the books. When an employee crosses their employment anniversary the leave becomes due and the holiday pay is set back to zero. This shuffling around of leave balances is a common source of confusion.
What is an employee’s annual leave worth? Cross the leave anniversary and the value can totally change, not just because of the difference between 8% and 4/52, but also because the leave may be suddenly valued at a higher rate if, for example, the employee has recently had a pay rise.
FlexiTime's payroll system PayHero handles all the complexities of holiday pay calculations. It will do the final pay calculations for you at the tick of a ‘Final Pay’ box, and track the various leave balances required to manage this (holiday pay, leave due, taken, accrued and available). But we would love to have a simpler approach that doesn’t require pages of online help and hours of phone support.
And we know just the way to fix this; a way that keeps the marmalade away from the Vegemite. We’ll explain that in a post soon