No leave of absence for employers on Holiday Pay

Dave Ananth – No leave of absence- Dave Ananth Web

Do you suspect that the Holiday Pay that you received before Christmas was less than your entitlement? Do you believe that the amount received was wrong or that it was not included in your pay?

Holiday Pay has been in the news recently for the wrong reasons, wrong calculations or a botched IT pay roll system.

Some employers got it wrong and have paid massively for it.

In 2014, an Auckland company was ordered to pay $256,000 in Holiday Pay including interest to a former manager, on top of a multimillion dollar payout.

The Court ruled that the manager was entitled to Holiday Pay on earnings received after the last day on the job. The ruling was clear that employers are obliged to give Holiday Pay on gross earnings, including bonuses or commissions received after the job is over.

Universal application

Holiday Pay is governed by the Holiday Act 2003, Section 3 of which describes the purpose of the Act, which is to promote balance between work and other aspects of employees’ lives and to provide employees with minimum entitlements.

The provisions of the Holidays Act apply to all employees regardless of whether they are full-time, part-time or casual. It does not discriminate.

The Statute provides that every employee is entitled to a minimum of four weeks’ annual leave per calendar year, exclusive of public holidays after one year of work.

This is paid leave. Employees must be given the opportunity to take two of the four weeks as continuous holidays if they so wish. Section 6 of the Act states that the Act entitlement herein guarantees employees’ minimum rights. It does not prevent them and their employer to negotiate better holiday conditions.

At the first instance, for most people, the name in itself seems to suggest that Holiday Pay is designed to give you more money for your holidays.

That is not the case.

The aim of the Holiday Pay Act 2003 is to give employees ‘Paid Holiday.’

Employer obligation

Employees will be able to take their break, go surfing and return to work rejuvenated. Holiday Pay does not replace a wage or salary. It is on top of your regular pay. If the employee does not have the holiday on the day itself because they have agreed to work, then they must have it at some other time. The Courts have ruled that an employer cannot contract out of the legislative obligation of providing a paid day off by providing greater rates of pay.

Holiday Pay is typically calculated at 8% of gross earnings and is shown as a dollar amount or if they worked less than a year, calculated on a pro-rata basis. The calculation must include all salary, wages, overtime pay, allowances and commission.

Confusing calculations

The method used for calculating Holiday Pay is the main culprit for the confusion.

It gives you two methods of calculating holiday pay, taking the greater of the two as the correct amount as the weekly Holiday Pay.

One is based on ordinary weekly pay – earnings over last four weeks, divided by four. The other involves taking total gross earnings in the first continuous 12-month period of employment and dividing these by 52.

The higher of the two sums will be used to calculate your holiday pay.

Part-timers must agree with their employer on what is a ‘work week’ for easy calculation of Holiday Pay.

Recurring mistakes

Mistakes happen when 8% is taken from the employment contract sum rather than what is actually in the pay packet. It is suggested that a method encompassing full and part- time employees is designed for certainty and clarity.

It is good practice to separate the wages from the Holiday Pay in the pay packet.

This will make them easily traceable in future and avoid complications. The employer could be forced to pay out all over again.

Holiday Pay is not paid like regular pay unless it becomes difficult to calculate as your hours are so irregular. Or you are in a fixed term agreement. Otherwise, for all purposes, you will receive Holiday Pay either when you take a holiday, or agree with your employer to cash up some of your holiday entitlement, or your employment ends.

A local daily reported that the Labour Inspectorate confirmed that since 2012, more than 40 employers have been investigated for payroll-related breaches of the Holidays Act and more targeted investigations are planned.

It is time that some certainty is given to the law on Holiday Pay which at this juncture is not a vacation at all.

Dave Ananth is an experienced tax barrister practicing in Auckland. He was an IRD Prosecutor based in Manukau before establishing his private practice. He is now in Malaysia advising on GST compliance on a two-year contract. He is a regular speaker at various conferences and seminars.


The above should be read as of general interest and should not be considered as legal advice or suited to all persons at all circumstances. You should consult your employer or seek proper expert or legal advice (at no cost to the author or to Indian Newslink and its employees) in respect of your case.

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