Question:

We have just started setting payroll for NZ and I am confuse about the payment of annual leave. Here in Australia, you get 4 weeks AL per year and in NZ is the same – 4 weeks AL per year. In Australia, we accrue AL every week on a pro-rata basis and pay AL to employee according to their accrued leave or sometimes in advance. For example, an employee on 3 months employments gets 5 days AL and if he applies for that 5 days he gets paid that 5 days. In NZ, do we also accrue AL on prorata basis of 4 weeks over 12 months and if an employee has accrued 5 days and has applied for 5 days AL, the payment would just be 5 days AL? I am confused whether it should be payment of their normal weekly pay plus the average of the 4 weeks AL? Could you please provide example. I am just trying to do the work-it-out calculation under Inland Revenue but still confuse. If a person is getting 80K pa and paid fortnightly @76 hours and has applied for 5 days AL, would the pay be 5 days AL @ 1538.46 and 5 days normal @ 1538.46? Would the tax be calculated differently?

Answer:

 

Calculating Annual Leave in New Zealand

 

The way annual holidays are calculated in New Zealand is defined under the Holidays Act 2003.

 

On termination of employment the only calculation for prorata (accrual) is 8% of gross earnings from the start of employment or from the last entitlement date to the end of employment (section 23 & 25 of the act). 

 

For entitlement (accrual changes to entitlement at the 12 month mark) there are two calculations that must be done and it is the greater of the two: 

 

·         Average weekly earnings (AWE) (gross earnings for the last 12 months from the last pay period divided by 52 weeks) and

·         Ordinary Weekly Pay (OWP) (either what is the ordinary week pay defined in the employment agreement (including performance payments, overtime, and board and lodgings) or gross earnings from the last four calendar weeks from the last pay period divided by 4 (section 9 of the act).

 

It is also very important that you ensure the right types of payments are going into the correct gross earning periods (12 months and 4 weeks) or it will inflate the AL payment.