Paying your staff is one of the most important tasks in your business. Getting it wrong is certainly almost unforgivable.
With that in mind, it’s important to understand that running payroll isn’t as simple as paying your employees XX number of hours x $XX = Gross pay.
Under the illustrious (lol) piece of legislation that is the Holidays Act 2003, employees are entitled to several types of paid leave provided they meet certain conditions.
In terms of payment and employment entitlements, there are ways of calculating the rate of payments for leave taken.
To put it simply, Rate of Payment refers to the amount of money your staff are paid according to their employment contract and/or the Holiday Act 2003 at a minimum. As there are various ways to be paid when employed (casual, part-time, salary, etc.), payment method is determined by the employer.
In this blog, we will look at some of the common leave employees are entitled to and hopefully clear up any confusion you may have when it comes to the Rate of Payments.
Types of Leaves
Bereavement Leave
Paid leave that’s available to an employee at the time of death or funeral of a member of the employee’s immediate family.
Sick Leave
This is a paid leave of absence granted because your employee or their dependents are ill.
Public Holidays
It is a national holiday, or legal holiday established by law and is usually a non-working day during the year.
Alternative Holidays
It is a day an employee is entitled to take off as paid leave in return for having worked on a public holiday. Employees are only entitled to an alternative holiday if the public holiday they worked occurred on a day they would normally have worked.
Family Violence Leave
Employers must give at least 10 days of paid family violence leave each year to employees who qualify.
How to calculate Rate of Payment for these types of leave
Payment for these types of leave is determined by using either Relevant Daily Pay (RDP) or Average Daily Pay (ADP). Employers may use average daily pay (‘ADP’) only if it’s not possible or practicable to calculate the employee’s relevant daily pay, or the employee’s daily pay varies in the pay period where the holiday or leave falls.
Relevant daily pay (‘RDP’) means paying an employee what they would have earned if they were at work on the day.
Average daily pay (‘ADP) is a daily average of the employee’s gross earnings over the past 52 weeks.
Annual Leave
An employee entitlement that allows employees to take time off while being paid as per their employment contract and/or the Holidays Act 2003.
How to calculate Rate of Payment for annual leave
“Annual holidays are paid at the rate of the greater of ordinary weekly pay and average weekly earnings.”
For an employee who takes all or part of their annual holiday entitlement, the annual holidays are paid at the rate of at least the greater amount of:
- Ordinary weekly pay (OWP) as at the beginning of the annual holiday, or
- The employee’s Average weekly earnings (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday.
Both calculations need to be completed every time the employee takes annual holidays.
Ordinary Weekly Pay (OWP) is determined by;
- Looking at the amount the employee receives under their employment agreement for an ordinary working week – or roster. If the employee works different but predictable shifts, then the ordinary pay (and the payments which are included) should relate to the week they are taking annual holidays. When it isn’t possible to work out ordinary weekly pay in terms of the amount the employee normally receives for an ordinary working week then;
- Ordinary weekly pay must be calculated in accordance with the ordinary weekly pay formula (4 Week Average)
Average Weekly Earnings (AWE) are determined by;
- Average weekly earnings are worked out by calculating the employee’s gross earnings over the 12 months prior to the end of the last payroll period before the annual holiday is taken, and dividing that figure by 52.
Rate of Payment Exceptions
Parental Leave and impact on Annual Holidays
If an employee has unused annual holidays they were already entitled to before going on parental leave, then the normal calculation for annual holidays applies as above.
However, if they become entitled to Annual Holidays during the parental leave period or in the next 12 months after their return from Parental Leave then the pay for those annual holidays is calculated at the employees average weekly earnings over the 12 months before the last pay period when the annual holidays are taken (no comparison to OWP)
An employer can always choose to do better than the Holidays Act 2003 and pay these annual holidays using the greater of ordinary weekly pay or average weekly earnings.
Calculating Rate of Payment is hard. Help!
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