Your employee heads away for a week or two of brews and BBQs. You know the rules and you're ready to pay them right through. But you're a bit taken aback to see that they actually get paid more while they're on holiday. How does that work!?
Holiday pay is either:
- the employee’s ordinary weekly pay OR
- the employee’s last 52 weeks’ average pay.
As the employer, you have to pay them whichever one is higher. This rule means that people often receive more than their normal salary when they take annual leave.
So if your employee has been receiving taxable payments on top of their normal pay (say, an accommodation allowance), their average weekly pay will be higher than their ordinary pay.
If that still sounds strange to you, this quick video might help clear things up.
Now, here's where we get into choppy waters: if holiday pay is higher due to accommodation allowances, some employers get a bit cunning and reduce the allowance while the employee is on holiday, which lowers the 52-week average, bringing the holiday pay rate closer to the normal rate.
The legislation is a bit unclear – although the employee should definitely be receiving the higher rate for their leave, the rules around “dropping” the accommodation allowance are vague, because technically the employee is still being paid the higher holiday rate.
As with many staff issues, when in doubt, check the employment agreement. If it says that the accommodation allowance will be paid at a set rate, we recommend that you follow the contract, paying the full accommodation allowance while the employee is away on annual leave, as well as the higher rate for the leave days.
So you've got an employee who's racked up weeks (or months!) of leave and refuses to take a break. You're worried about the impact on your roster or financials if they take it all at once.
Annual leave is like a McDonald's cheeseburger. It never goes off. It rolls over from year to year, building up if it’s not taken. It can’t be capped. You can’t take away somebody's leave, even if they've accumulated heaps or if it’s been held a long time. But you can ask them to take up to two weeks' leave, at least two weeks in advance.
Time is Money
People in NZ are required to take time off for Health and Safety reasons. Employers can give more than 4 weeks’ holiday per year, but not less.
It is okay to pay one week’s annual leave as a cash-up, but not more than one week. Check out our extremely helpful guide to cashing out leave.
If the employee continues to work, you can't give them their holiday pay. Only one week a year can be taken as a cash-up. Everybody needs to take time off to be paid all their leave (or quit). If you're paying 3 weeks’ holidays, make sure they're taking 3 weeks off.
The purpose of 4 weeks’ holiday each year is to give employees some R&R, so that the workforce stays rested and focused.
Employees can ask to be paid the entire value of their holiday pay at the start of their leave period. If it’s not an option financially for your company to pay it all at once, make sure the employment agreement mentions that any leave taken will be paid on the next normal payday.
Leave in NZ is notoriously confusing, so we can't cover it all in one go. If you need to get more specific, check out our pieces on holiday rates and cashups.
If it seems overwhelming, don't panic! Get to know the big rules, refer back to your employment agreements, and if you're worried, talk to an expert. On that note, we're always keen to hear your questions - call us on 0800 746 701, or shoot us a message via our contact page.