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Calculating leave entitlements and the right amount to pay staff, can be a tricky thing to get right. Employers in New Zealand consistently rank the calculation of leave payments as one of the toughest parts of management. While the system is convoluted, it aims to provide employees with a “fair” amount when they are on leave. This article will set out an overview of how to calculate payments for different kinds of leave in New Zealand.

Calculating Payment For Annual Leave

Calculating the figure to pay an employee on annual leave is the most complicated part of leave entitlements. This is because there are two different kinds of calculations that may apply, depending on which is best for the employee.

When working out how much to pay an employee on annual leave, they should be paid at whichever of the below rates is greater:

  • ordinary weekly pay (OWP) as at the beginning of the holiday; or
  • the employee’s average weekly earnings (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday.

Ordinary Weekly Pay

Ordinary weekly pay refers to the pay an employee normally received for week’s work. This includes their salary or wages. It can also include other payments if they are a regular part of the employee’s pay.

For example, if in each pay period your employee receives commission payments for sales made during that period, these payments would be included in a calculation of their ordinary weekly pay. For most of your employees, ordinary weekly pay may be quite clear if they receive the same amount for each week they work.

Average Weekly Earnings

You can decide average weekly earnings by calculating your employee’s gross earnings over the 12 months prior to the end of the last payroll period before their annual leave, and dividing that figure by 52. The resulting figure should give you their average weekly earnings.

For calculating what to pay employees on annual leave, use whichever of the two figures between ordinary weekly pay and average weekly earnings are higher.

Calculating Payments For Sick and Bereavement Leave 

When an employee takes sick and bereavement leave, you will in most cases pay them relevant daily pay (RDP). This simply means paying them what they would have earned if they were at work on the day. However, in some situations, you should pay the employee their average daily pay (ADP).

You should only calculate average daily pay when:

  • it is not possible or practicable to work out relevant daily pay, or
  • an employee’s daily pay varies in the pay period in question.

Average daily pay is a daily average of the employee’s gross earnings over the past 52 weeks. You can work it out by adding up the employee’s gross earnings for the period and dividing this by the number of days the employee worked.

Calculating Payments for Public Holidays

Calculating payments for your employees working on public holidays should be relatively simple. They should be paid “time and a half” in most cases. This means their normal wage, plus an additional 50%.

However, some employees may have penal rates included in their employment agreement. This is most common for collective agreements. In these instances, the appropriate payment (including the penal rate) may be more than “time and a half”. If it would be less than “time and a half” for whatever reason, you are required to pay them the higher figure. 

Key Takeaways

Calculating leave entitlements in New Zealand can be complicated and it can be easy to get it wrong. In most cases, you should be able to work out how much your employees should be paid when they are on leave. The key thing to understand is that different kinds of leave have different calculations. Annual leave requires calculating the employee’s ordinary and average pay over a week. Sick and bereavement leave usually involves paying the employee what they would normally have earned on that day if they were at work. If you want to know more about calculating leave entitlements, contact LegalVision’s employment lawyers on 0800 005 570 or complete the form on this page.

FAQs

How do most companies manage their leave entitlements?

As it is a complicated endeavour, most companies use payroll software to help track leave balances, entitlements, and calculate the right amounts to pay. However, you must ensure that this software is receiving the correct information, and check that the right calculations are being made.

What is the difference between calculating pay for annual leave instead of sick leave?

For annual leave, the calculations you will need (you will pay the greater) are ordinary weekly pay and average weekly earnings for the employee. For paying sick leave, you will mostly pay your employee relevant daily pay. Sometimes, you will pay relevant daily pay.

Why is the holiday pay system so confusing?

New Zealand’s legislation around leave entitlements and pay is extremely complicated and confusing. While the government is planning an overhaul of the system, there are no signs of this happening in at least the next few years. 

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