Here is additional information sourced from MBIE’s internal training material on their view of what is included in gross earnings for leave under the Holidays Act 2003. There was an additional 6 pages of information that MBIE won’t provide stating legal privilege. NZPPA is presently fighting this through the Ombudsman and hope to gain access so all can benefit and use it to help be compliant with the act. We wish MBIE would have the same focus but they are afraid of being challenged and getting it wrong. NZPPA believes it is far better to get it wrong and out in the open so a real discussion can be conducted than act like a possum caught in headlights not moving at all. The problem is employers and payroll are the ones being hit by MBIE’s lack of movement!

Extract from MBIE training material on Gross Earnings for the Holidays Act 2003:

OVERVIEW

This section outlines what is included in gross earnings for the purposes of calculating average weekly earnings for annual holiday entitlements. This section is also discussed in its context with section 21.

14.1 What is included

The gross earnings figure includes all payments that the employer is required to pay to the employee under the employee’s employment agreement. With the exception of the cash value of provision of board and lodgings, an employee’s gross earnings is made up only of payments.

It does not matter whether the payments were regular or not. For example, ordinary weekly pay does not include irregular payments for overtime (section 8(1)(c)(ii)), whereas gross earnings includes all overtime payments, whether regular or not (section 14(a)(v)).

14.1.1 Payments specified by employment agreement

All payments that the employee is entitled to receive under their employment agreement) are included in gross earnings.

A payment that is specified in the employment agreement to occur at a particular time or at a particular event would be included. For example the employment agreement may make provision for the employer to make a payment to a new mother on her return to employment after parental leave. Because this payment occurs at on the occurrence of a specified event, it would be included.

14.1.2 ACC payments

First week compensation under ACC is included in gross earnings because it is paid by the employer rather than ACC.

14.1.3 Contractual payments on termination

The principle is that the employee’s gross earnings include everything that the employer is bound to pay the employee under their employment agreement. Therefore, if the employer is bound to pay the employee a certain amount on leaving employment (be it a retirement allowance or lump sum long service leave) this should go into the employee’s gross earnings.

This would include common contractual lump sums payable on termination as per employment agreement such as retirement allowance (e.g.) and the cash value of long service leave on termination.

14.1.4 Contractual annual bonuses

If an employee has an agreement with their employer that they would receive a yearly bonus (providing certain conditions are met), then this amount of bonus would be included as part of gross earnings. Even though it may not be payable every year because the employee may not meet the conditions every year, it is included because of the fact it is part of the employee’s employment agreement and it does not fit into any of the exclusions outlined in 14(b) or (c).

This payment is not discretionary as, if the employee met the criteria, the employer would have to pay the bonus under the employment agreement.

14.1.5 Payment in lieu of notice

If an employer pays out an employee’s notice in lieu of actually working it out, it is included as part of gross earnings for the calculation of holiday pay. The 2008 Employment Relations Authority determination of Pownall v Fairbrothers Industries Ltd {29/2/08 ERA

Auckland AA69/08}, held that payments in lieu of notice, irrespective of when they are paid, are: ”a payment “that the employer is required to pay to the employee under the employee’s employment agreement” in terms of s14 of the Act. The timing of the payment, albeit by agreement, does not change the fact that there is a contractual obligation to pay it.” 6

14.2 What is not included

If the payment is something that does not need to be paid to the employee under the employment agreement (such as a completely gratuitous bonus) then this does not need to be included in gross earnings. Also excluded from gross earnings are any payments that are made to reimburse the employee where they have paid out of their own pocket for work related expenses. The 2010 Amendment further clarified that allowances do not include non-taxable reimbursement payments. Section 14(c)(iv) also explicitly excludes any payment made to an employee when cashing up annual holidays in accordance with section 28B.

Extract from: MBIE Holidays Act 2003 and related Ministry Policies Resource Manual