In New Zealand, under the Holidays Act 2003, the treatment of annual leave and holiday pay depends largely on the employee’s work pattern. Full-time and part-time employees, who work regular hours, accrue annual leave. After 12 months of continuous employment, they are entitled to four weeks of paid annual leave. This leave continues to accumulate from year to year if it’s not used, offering employees the flexibility to take time off when they need to while still receiving their regular pay.
On the other hand, casual employees or those with irregular work schedules receive holiday pay, which is typically calculated as 8% of their gross earnings and paid out with each pay cycle. This system is used when the employee’s work is so irregular that it wouldn’t be practical to provide four weeks of annual leave.
In the case of fixed-term employees, it’s sometimes possible to pay holiday pay ‘as you go’, but this only applies if the contract is less than 12 months, and the arrangement is specified in the employment agreement.
It’s critical to handle these entitlements correctly in payroll processing. Misclassifying a full-time permanent employee and paying them on an 8% ‘pay as you go’ basis could have significant consequences, including potential penalties from MBIE (Ministry of Business Innovation and Employment) / ERA (Employment Relations Authority) and claims for unpaid annual leave.
Employees and employers alike should remember that these rules are in place to ensure a fair and equitable system, where workers can rest and rejuvenate, regardless of their employment status or schedule. Therefore, it’s important to understand and apply them correctly.