Is 52 weeks pay history required?

Is 52 weeks pay history required?

One of the questions we get quite often when companies are changing from old payroll software to FlexiTime is “Do I need to load 52 weeks pay history from my old system?” The advice we have received from the Ministry of Business, Innovation and Employment (MBIE) Labour Group is yes, the employer must calculate the rolling 52 week average whenever an employee is paid for annual leave taken in order to ensure that the rate paid meets the requirement of section 21 of the Holidays Act –

21 Calculation of annual holiday pay

(1) If an employee takes an annual holiday after the employee’s entitlement to the holiday has arisen, the employer must calculate the employee’s annual holiday pay in accordance with subsection (2).

(2) Annual holiday pay must be—

  • (a) for the agreed portion of the annual holidays entitlement; and
  • (b) at a rate that is based on the greater of—
    • (i)the employee’s ordinary weekly pay as at the beginning of the annual holiday; or
    • (ii)the employee’s average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday.

Some other payroll systems don’t believe that 52 weeks is required. According to the Labour Group and the IRD Payroll Developers Specification they are not correct.

Even though the calculation of the 52 week average is required in most cases the employee’s ordinary rate (the amount of pay that the employee receives under his or her employment agreement for an ordinary working week or if this is not able to be determined the average over the last 4 weeks) will be higher than the average rate. Employee’s pay most often increases over time and so the average over the last 4 weeks will generally be higher than the average over the last 52 weeks. This won’t be the case if the employee worked more hours, received commission or bonus payments or was on a higher rate in the 48 weeks preceding the last 4 weeks.

We think a guiding principle to laws involving calculations required by employers is that if it can’t be easily calculated on a piece of paper it shouldn’t be the law. This is clearly an example where the calculation required of employers is not easily done without the help of a computer system. How do the government expect someone without a computer to calculate the average pay rate?

Of course FlexiTime makes this calculation for you, however, if you have changed payroll systems to FlexiTime from another system you are required to load the 52 week pay history for all employees into FlexiTime. This can be rather onerous. We have developed migration tools that can do this for you if you are changing from MYOB Payroll or Ace Payroll, for other payroll systems we can provide you with a spreadsheet where the basic pay history data can be entered and then loaded into FlexiTime.

So what would be a better approach?

To make it easier for employers to calculate the rate of pay an employee receives when they take annual leave we think they should accrue leave based on the hours worked and be paid for these hours when leave is taken at their ordinary hourly pay rate plus a percentage of “leave loading”.

This approach is currently used in Australia where, depending on conditions, a leave loading rate (usually 17.5%) may be payable. We think this is a far simpler approach than our current method of having to calculate a rolling 12 month daily average every pay day.

Robert Owen
robert.owen@flexitime.co.nz

Founder & CEO of FlexiTime.

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