As an employer, you will have to pay penal rates in some circumstances. A penal rate is when you pay an employee an extra amount on top of their wage or salary for working a particular day or ‘class’ of days, most commonly public holidays or weekends. However, these penal rates are generally set out in employment agreements or agreed with a union in the process of negotiating a collective agreement. For that reason, you may have some control over the level or amount of penal rates your company will have to pay. There is a lot of uncertainty around penal rates. This article will clearly explain:

  • what penal rates are;
  • when they apply; and
  • what happens when your business has a collective agreement in place.  

What is a Penal Rate?

A penal rate can be any additional amount that you and an employee agree upon, regarding how much to pay the employee for working a particular day or type of days. Penal rates are not automatic and you must outline them in employment agreements. As a general observation, New Zealand has less emphasis on penal rates compared to other countries.

For example, a penal rate may set out that employees get paid twice their standard wage when they work public holidays.

When Do Penal Rates Apply?

There is no general rule around penal rates, so different kinds of employment agreements can have different variations that best fit the industry or type of work in question.

For instance, some agreements may provide that an employee is paid more when they work on a weekend day.

However, New Zealand does have specific rules for public holidays. When an employee works on a public holiday, they must be paid the greater of their:

  • normal daily pay for the time worked on the day (not including any penal rates in the employment agreement) plus half that amount again. This is called ‘time and a half’; or 
  • normal daily pay for the time actually worked on the day (including any penal rates in the employment agreement). The employee does not have entitlement to time and a half on top of the penal rate.

Note that current public holidays in New Zealand are:

  • New Year’s Day: Friday 1 January;
  • Day after New Year’s Day: Monday 4 January;
  • Waitangi Day: Monday 8 February;
  • Good Friday: Friday 2 April;
  • Easter Monday: Monday 5 April;
  • Anzac Day: Monday 26 April;
  • Queen’s Birthday: Monday 7 June;
  • Labour Day: Monday 25 October;
  • Christmas Day: Monday 27 December; and
  • Boxing Day: Tuesday 28 December.

Does a Collective Agreement Apply?

Unions negotiate most penal rates on behalf of their members. Further, collective agreements often include penal rates that apply for the covered employees. As an employer, you must then pay the relevant rate set out in the collective agreement when the circumstances (weekends, public holidays etc) apply.

While penal rates are less prominent in New Zealand than overseas, they are still a common feature of many employment agreements. Whether to include a penal rate in an agreement is often dependent on the working conditions of the roles in question, industry type, and other variable factors.

It is almost always a good idea to get legal advice when negotiating a collective agreement.

Key Takeaways

If your employee’s employment agreement includes penal rates, then you will have to pay them in the way set out in that agreement. A penal rate can be any additional amount that you and an employee agree on. It outlines how much you will pay the employee for working a particular day or type of days. They are not automatic and are spelled out in employment agreements.

They are different from ‘time and a half’ but are often associated with public holidays, where New Zealand law ensures that employees working on public holidays get ‘time and a half’ (or more, if they have a penal rate). If you want to know more about penal rates or negotiating collective agreements, contact LegalVision’s new Zealand employment lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

What is a penal rate?

A penal rate is an additional amount that you and the employee agree will be paid to the employee for working on a particular day, such as a public holiday.

When do I have to pay penal rates?

It depends on the dates specified in the employment agreement or collective agreement.

I worked on a public holiday. How much money am I owed?

At least ‘time and a half’ in most instances. Your employment agreement should specify this. If not, New Zealand law specifies that the minimum you must be paid for working on a public holiday is time and a half. 

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