05 Feb Let’s fix the Holidays Act
Blog #7 in our series on the Holidays Act
Over the last couple of months we’ve looked at some of the problems with the Holidays Act. And there are umpteen blog posts worth of other problems we might look at later – Parental Leave I’m looking at you.
But in this post I want to outline a potential solution; an easier way to record and calculate annual leave that still upholds the first principle that the Act is designed to protect:
“For the purposes of rest and recreation, all employees are entitled to enjoy four weeks’ paid annual holidays (or “annual leave”) each year.”
It’s amazing how complex payroll has become to administer such a simple objective!
I think there are only two values required to handle annual leave – the quantity of leave due to an employee in whatever units are appropriate, and the value of that leave due.
So as an employee is paid, add a proportion of their dollar earnings to their total leave value, and add the same proportion of units to their leave due. For the leave due you can use whatever units are appropriate – hours, days, weeks, widgets – it doesn’t matter.
This way, at all times, the employee knows how much leave they have and how much it’s worth. Just two simple numbers; that’s all we need to replace holiday pay, annual leave due, annual leave taken since last anniversary, annual leave accrued, ordinary pay rate, average pay rate, leave anniversaries and various other values that combine these.
What happens when the employee comes to take the leave? Simply deduct the units of leave from their due quantity, and deduct the same proportional amount from their leave due value. Here’s an example:
Joe has worked 40 hours a week for the last 6 months, earning $20 and hour. His total hours are 40 x 26 = 1040, and his earnings are $20,800. But that’s all a bit simple: let’s spice it up with $3000 of commission he’s also received during that period.
For an employee with four weeks a year of leave, 4/52 of their work is going to be leave. So for Joe, during those 6 months he’s accrued 1040 x 4/52 = 80 hours of leave. The value of that leave is $23,800 x 4/52 = $1,830.77.
So now Joe takes a couple of days off for a long weekend to go to his mates wedding; he’s taking 16 hours off. How much is he going to get paid for that time? The leave is 16/80 of his remaining balance, and he should be paid the same proportion of the value of the leave due:
16/80 x $1,830.77 = $366.15. That works out to 16 hours at $22.88. So his commission payment is taken into consideration, without any need for the ridiculous rolling 12 month average calculation.
The other equivalent way of doing the calculation is to divide the dollars leave balance to the units balance to get a rate and apply that to the units being taken.
We’ll take a closer look at this approach in future blogs. In the meantime, we’d be very interested to hear your views. Does this make sense to you? Are there any scenarios where you think it may not fit?
Get started today
FlexiTime is flexible payroll software for New Zealand businesses. With online timesheets, FlexiTime makes it easy to track the hours your employees work and pay them accurately.