Posted on: Oct 05, 2012
Question: An employee’s last working day is 31 May 2012. His next holiday anniversary date is 1 April 2013. His annual leave due to 31 March 2012 is 30 days at $200 per day ($6,000). His gross earnings for the period 1 April 2012 to 31 May 2012 are $10,000.
What is his final holiday pay for the period 1 April 2012 to 31 May 2012? Is it 8% of $10,000 or 8% of $16,000?
Answer: The final amount of holiday pay to pay to the employee on termination is 8% of $16,000. Under the Holidays Act 2003 (the Act), at the end of the employment relationship, for whatever reason, the employee is entitled to be paid his or her holiday pay as a lump sum. The payment must be made by the employer in the pay that relates to the employee’s final period of employment. If the employee has worked for longer than 12 months, the employer must pay him or her for any earned but untaken holidays (the 30 untaken days) and for the accrued entitlement for the year to date (accrued from 1 April 2012 to 31 May 2012). Section 24 of the Act sets out how to make the first calculation and section 25 deals with the second.
Calculation for earned but untaken holidays — section 24
Section 24 requires the employer to value the employee’s earned but untaken, or not cashed up, holidays, if any, using the higher rate of:
- the employee’s ordinary weekly pay as at the end of the employment, and
- the employee’s average weekly earnings during the 12 months immediately before the end of the last pay period.
Calculation of accrued entitlement — section 25
Section 25 sets out the manner in which the employer must calculate the employee’s accrued entitlement for the year to date. To do so, the employer must take 8% of the employee’s gross earnings since the employee last became entitled to annual holidays, or a higher percentage if the employee’s employment agreement provides for greater than four weeks’ annual leave per annum. The gross earnings figure used in the calculation under section 25 must include any holiday pay calculated under the calculation made under section 24 (refer to section 26).
Payments may be cumulative
Section 26 confirms that sections 24 and 25 are not applied in the alternative. An employee with greater than 12 months’ service may be entitled to payments under both sections. When calculating the payment under section 25, the employer must include any payment calculated under section 24 in the gross earnings figure.
We appreciate the Holidays Act can be a bit of a nightmare to interpret and work with, so if you’ve got any questions contact one of our team for assistance.
Disclaimer
This article, and any information contained on our website is necessarily brief and general in nature, and should not be substituted for professional advice. You should always seek professional advice before taking any action in relation to the matters addressed.
