What is holiday pay?

Holiday pay

Holiday pay is not just a payment to employees while on annual leave. Holiday pay implies multiple meanings:

  • The leave payment while an employee is on annual leave or public holiday.
  • 8% of their gross earnings to casual employees at the end of engagement.
  • 8% of their gross earnings to permanent employees during 12-month period from their start.

Ordinary weekly pay and Average weekly earnings

An employee on annual leave must get paid more than Ordinary weekly pay and Average weekly earnings.

  • Ordinary weekly pay is the amount that employee receive for an ordinary working week. It includes productivity and incentive payments, such as commission, regular overtime, and cash value of board for employee’s package. But it does not include discretionary and one-off payments.
  • Average weekly earnings are the gross earnings for the previous 12months, divided by 52. These include paid leave, certain allowances, overtime productivity, and incentive payments, such as commission, first-week compensation for a work-related injury, and the cash value of board for employee’s package. But these do not include payments not covered by the employment agreement, such as discretionary payments, weekly compensation from ACC, and reimbursement payments or allowances for work-related expenses, such as business trips, meal, and tool allowances.

Payment

Holiday pay has to be paid if employees are entitled to be paid holiday pay before starting a period of annual leave, unless employees agree that they are to be paid on the day they would normally be paid if they were not on leave or the employees were terminated from employment.

  • Holiday pay on termination: If the employee’s employment terminates within 12months or before the employee qualifies for annual leave, 8% of gross earnings must be added to their final pay. Any payment for holidays taken in advance, and any holiday pay which has been paid with ordinary pay should be deducted.
  • Pay as you go: Holiday pay can be included in ordinary pay if there is a genuine fixed-term employment agreement for less than 12 months or it is impractical to provide 4 weeks annual leave because the work is too irregular. For holiday pay in ordinary pay, it should be agreed to in the employment agreement. The payment should be an identifiable (e.g. noted on the pay slip) and at least 8% of gross earnings.

If you used “pay as you go” holiday pay incorrectly, and employees works for more than 12months, the employee will be entitled 4 weeks paid annual leave, even if they received holiday pay during the first period. It means they get paid twice for annual leave earned in the first year.