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Employers Caught out by the Holidays Act

Published 09 Apr 2016

Making headlines in recent weeks is the discovery that many Employees throughout the public and private sector have been under paid.  An investigation by MBIE found that eight Employers collectively owed pay to 24,000 Employees, with amounts ranging from $70 to $1800 for each Employee.  

Unfortunately, there has been no official statement as to the nature of the issue and the details are confidential to the parties involved.  However, we do know that the issue originates out of the Holidays Act 2003.  One of the most complicated areas of this Act, and what we think is likely to be the problem, is how Employers calculate annual leave.  

In 2004 the Holidays Act changed to allow Employees’ annual leave to be paid at either their current pay rate or at the rate of their average weekly earnings over the previous year – whichever is highest.  It is this calculation that many Employers struggle with.   Most Employers will simply pay what their Employees were going to receive that week and not consider what the Employees’ average gross earnings over the previous year were.  Average gross earnings include payments like overtime, incentives or days worked at time and half on public holidays.  

Put differently, annual leave payments are either based on an Employee’s weekly pay at the time they take their break, or, on the average pay they have received over the previous year.  Employers must pay whatever is greater.  

Under the law, Employers are liable to ensure they are compliant and have been paying their Employees correctly.  Employers who would like more information on what they should be paying and how to calculate this pay should refer to our E-Book ‘Annual Holidays and Leave’.

If you have an Employers Toolbox account this is in the Library section for you to download.