Just a short post as there has been an influx of questions on this in the last week to NZPPA’s PayTech AdviceLine (I don’t know why). And so, I thought I would just highlight this area in a post.

In a nutshell, think of annual holiday entitlement (earned after the employee has completed 12 months of continuous employment) as money and time.  The Holidays Act after 12 months provides four weeks of entitled annual holidays (TIME), and the Act states if taken, the employer must pay the greater of average weekly earnings (AWE) or ordinary weekly pay (OWP)(MONEY). Any annual holiday accrual earned before reaching 12 months should only be seen as MONEY and under the Act is stated as 8% of gross earnings for the period it covers.  

Now when an employee leaves (terminates for whatever reason) and has some unused annual holiday entitlement, this will be extended from the termination date forward.  And if there are any public holidays in that time period, the employee will also get paid for those days.  This is because of the TIME component of the annual holiday entitlement.  The employee could have taken the time as annual holidays. They would have also received the public holidays in the period as you cannot be on an annual holiday on a public holiday (section 40 of the Holidays Act).

So, for example, if the employee has two weeks of annual holiday entitlement that will not be taken and will be paid out on termination, and their termination date was the Friday before the week of Easter (they worked Mon to Fri each week), the two weeks of annual holiday entitlement would extend through the week with Good Friday and the week of Easter Monday.  The employee would get the two weeks of annual holidays paid out and two public holidays paid at relevant daily pay (RDP) or, if the day cannot be determined, average daily pay (ADP).

If the employee is getting notice paid out (in lieu), this is not treated the same as the annual holiday entitlement being paid out. As notice paid in lieu is where the obligation for working the notice is paid out, there is no time involved.  

So, what about accrual on termination?  As stated, the above accrual is not TIME; it is only MONEY, so it does not extend forward from an employee’s termination date.  For example, if an employee’s termination date is the day before Good Friday and they had been employed for three months, accrual paid out would be based on 8% of gross earnings from the employee’s start date to the end date (the Thursday).  If you have an accrual field in your payroll system, you will usually see it stated in time, so roughly three months would be shown as a week (even though it is actually 8% under the Holidays Act Section 23).

Just a couple of other points to make: If you provide additional annual holidays like a fifth week, this won’t extend forward from the termination date (if agreed to be paid out) as it is not the same as an annual holiday entitlement provided under the Holidays Act (unless agreed).  

As I do get this question quite a lot, my final point is about whether a termination date is the day before a public holiday or the Friday before a public holiday that will happen on the following Monday, does the employee get the public holiday? The short answer is no unless entitlement is involved. The termination date is the date set it does not extend automatically just because a public holiday is next to it.

In conclusion, on termination, if the employee has an annual holiday entitlement paid out, it must be extended forward.  And if there are any public holidays, these will also be included in the termination pay (and the 8%). However, any accrual does not extend. Just watch out for the employee with ten weeks of annual holiday entitlement saved up that leaves just before Christmas!

Note: This post was provided with permission from the New Zealand Payroll Practitioner Association (NZPPA)