Three60 Consult Logo

Calculation Holiday Pay Termination Employment

Posted on: Oct 05, 2012

Question: An employee’s last working day is 31 May 2012. His next holiday anniversary date is 1 April 2013. His annual leave due to 31 March 2012 is 30 days at $200 per day ($6,000). His gross earnings for the period 1 April 2012 to 31 May 2012 are $10,000.

What is his final holiday pay for the period 1 April 2012 to 31 May 2012? Is it 8% of $10,000 or 8% of $16,000?

Answer: The final amount of holiday pay to pay to the employee on termination is 8% of $16,000. Under the Holidays Act 2003 (the Act), at the end of the employment relationship, for whatever reason, the employee is entitled to be paid his or her holiday pay as a lump sum. The payment must be made by the employer in the pay that relates to the employee’s final period of employment. If the employee has worked for longer than 12 months, the employer must pay him or her for any earned but untaken holidays (the 30 untaken days) and for the accrued entitlement for the year to date (accrued from 1 April 2012 to 31 May 2012). Section 24 of the Act sets out how to make the first calculation and section 25 deals with the second.

Calculation for earned but untaken holidays — section 24

Section 24 requires the employer to value the employee’s earned but untaken, or not cashed up, holidays, if any, using the higher rate of:

  • the employee’s ordinary weekly pay as at the end of the employment, and
  • the employee’s average weekly earnings during the 12 months immediately before the end of the last pay    period.
Calculation of accrued entitlement — section 25

Section 25 sets out the manner in which the employer must calculate the employee’s accrued entitlement for the year to date. To do so, the employer must take 8% of the employee’s gross earnings since the employee last became entitled to annual holidays, or a higher percentage if the employee’s employment agreement provides for greater than four weeks’ annual leave per annum. The gross earnings figure used in the calculation under section 25 must include any holiday pay calculated under the calculation made under section 24 (refer to section 26).

Payments may be cumulative

Section 26 confirms that sections 24 and 25 are not applied in the alternative. An employee with greater than 12 months’ service may be entitled to payments under both sections. When calculating the payment under section 25, the employer must include any payment calculated under section 24 in the gross earnings figure.

We appreciate the Holidays Act can be a bit of a nightmare to interpret and work with, so if you’ve got any questions contact one of our team for assistance.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

Disclaimer

This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.

Subscribe to Newsletter

Christmas is coming…

Christmas is coming…

Once Labour Day has been [yes, believe it or not it’s this coming Monday], the next public holidays are at Christmas and New Year. It always feels like employers have to put a bit more thought into Christmas and New Year because: there are four public holidays; this is a time that many businesses have their annual closedown period; many employees take their annual leave; some employees don’t have enough leave to cover this period; some employment agreements have special rates for these public holidays; and, let’s face it, it is a busy busy busy time. In the next few weeks, my colleague, Tasneem Begum, and I will be offering a free webinar for those employers who want a bit more information around those tricky calculations for leave at this time of the year. We will also be able to answer the questions you have and the challenges you face with leave during the Christmas/New Year period. You are not alone with the questions you have – Questions we are often asked at this time of the year are about employing staff to cover the busy Christmas period

Read More
What the heck is going on with pay?

What the heck is going on with pay?

While we are conscious of the impact that inflation is having on wage and salary conversations, there are four other levers that have been, and are being, used to bring about fundamental change and significant uplift to pay in New Zealand. The Government is using these levers to drive increases in pay at various levels in ways that we may not be conscious of. However, when brought together as a single thread, they are having a big impact.

Read More
To Mediate or not to Mediate

To Mediate or not to Mediate

To mediate or not to mediate – that is the question… While William Shakespeare put into verse Hamlet’s soliloquy in endless agonising verse about dire choices with absolutely no chance of a happy ending – it is not so with mediation. Change the name, and the thinking around the word mediation. Let’s start thinking about it and calling it “an opportunity”. That’s really what mediation is; an opportunity for parties in conflict to come together and sort out their problem(s). It doesn’t have to be the only option, but it should be considered as a first step.

Read More
PREV NEXT