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Holiday pay issues are extremely common in New Zealand. In recent years, many organisations and businesses have been required to backpay employees (past and present) who did not see their entitlements calculated correctly. Yes, employees can claim holiday pay for previous years. Accordingly, your business needs to ensure that it is correctly calculating leave entitlements and that your payroll software is up-to-date. This article will: 

  • set out what holiday pay is in New Zealand; 
  • explain some of the context and controversy around holiday pay in recent years; and 
  • explain how claiming back pay for holiday works for employees.

What Is Holiday Pay in New Zealand?

Holiday pay can refer to different types of leave entitlements in New Zealand, depending on the context. Sometimes it might only refer to the time-and-a-half rate paid to employees for working on public holidays. However, in the context of back payments, it usually refers to the entitlement and payment of annual leave.

All employees in New Zealand are entitled to four weeks’ annual leave (also called annual holidays) after 12 months of continuous employment. However, this can be difficult to calculate depending on the employee’s circumstances. There will be differing entitlements for a:

  • four-hours-on-four-hours-off shift worker;
  • 12-hour shift worker;
  • 10-hour shift worker; and
  • typical full-time 9-5 worker.

This is because what a ‘week’ means will be different for each group in terms of the calculation of that entitlement.

Context Around Holiday Pay in New Zealand

Recently, many companies and organisations have to pay additional holiday pay and back pay to their past and present employees. The need to back pay is a consequence of failing to calculate their entitlements correctly. This includes large businesses and government organisations that are well-resourced. Therefore, reflecting the difficulty of correctly interpreting the Holidays Act in New Zealand, which governs entitlements and obligations.

The context for so many workers getting incorrect holiday pay entitlements dates back to when the Holidays Act 2003 originally came into force. Many businesses and organisations rely on payroll providers and their software to manage payment and leave calculations. However, much of the payroll software applied incorrect formulas for calculating holidays and other forms of leave. Therefore, employees may not have received all they are entitled to.

As an example of a common mistake and under-payment, the law in New Zealand requires that employers pay for accumulated annual leave, whichever is higher out of their ordinary weekly pay or their average weekly earnings for the last 12 months. While ordinary weekly pay and average weekly earnings sound similar, you calculate them very differently. This had a particularly significant impact on workers employed on variable or dynamic weekly hours or pay. The software tended to work effectively for those with regular full-time hours, although even then, some full-time workers had their leave miscalculated. 

Claiming Holiday Pay for Previous Years

Employees or their representatives can claim back payment for holiday pay for up to six years. Your business has an obligation to ensure that all employees have been paid their full entitlement. Therefore, if an employee has been underpaid or their leave was miscalculated, your business must make up the difference through back payment.

Suppose an employee thinks that they have been underpaid. In that case, an employee should begin a claim by asking your business for clarification around their holiday pay. They should also ask whether they received their full entitlement. They may ask whether your business has been audited for compliance with the Holidays Act. Your workforce may be partially or fully unionised. In that case, a union representative may speak to you on an employee’s behalf about these pay issues.

If an employee is not happy with your business’ response or if there is a dispute, they can take a claim to the Employment Relations Authority.

Key Takeaways

Employees can claim holiday pay in New Zealand if they believe that their leave entitlements have been miscalculated or underpaid. The period for which they can claim back payment is generally up to six years. To avoid a situation where your business has to provide back pay to a number of employees at the same time, it is important to check that your payroll software is up-to-date and correctly calculating the leave entitlements of your employees. This is particularly vital for those with irregular or unusual hours week-to-week. If you want to know more about holiday pay or managing requests and claims from your employees, contact LegalVision’s employment lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is holiday pay?

In the context of back payment, holiday pay typically refers to the accumulation and payment of annual leave. It can also refer to how you calculate holiday pay generally, including for situations like working over a public holiday. 

Can employees claim holiday pay for previous years?

Yes, if an employer has not calculated it correctly or if they have not received the full amount that they were entitled to. The limitation period (the period in which an employee has to claim this) is six years. 

Why are there so many issues with holiday pay affecting so many organisations?

The Holidays Act is a famously complicated piece of legislation that is difficult to apply correctly in all circumstances. When the Act first came into force, a number of payroll providers created payroll software with incorrect rules for calculating holidays and other forms of leave. Large organisations using this software then miscalculated leave entitlements for a number of years.

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