New Zealand: Holiday pay – are you paying your employees correctly?

The government has recently announced a payroll blunder that has left thousands of MBIE state sector workers underpaid. The same issue affected the NZ Police and cost them $30 million to fix.

The root of this problem is likely to be widespread across many private businesses. Your business could be in danger of making the same mistake.

The amounts in each case are likely to be small but over a long period of time and for a large number of employees they can add up to thousands of dollars in back pay owing.

The issues generally relate to entitlements under the Holidays Act 2003, and how a range of allowances and entitlements have been interpreted and implemented. The specific areas that are likely to require remediation are related to the payment of statutory holidays, and the rate of payment for annual, sick and bereavement leave.

The problem arises due to the method of calculating the payment owing to the employee. There are different methods of calculating what the employee should be paid for a specific day of leave. Ordinary weekly pay, average weekly earnings, relevant daily pay and average daily pay are all different methods of calculation used for different types of leave. If the wrong method of calculation is used it can result in an underpayment to employees.

If your employees receive bonuses, commission, work regular overtime, or their hours vary day to day or week to week they could be affected.

The most common error is where waged employees, who work variable hours or regular overtime, are incorrectly paid a standard daily rate for statutory holidays, sick or bereavement leave based on their ordinary working hours, usually eight hours per day.

The Holidays Act is complex legislation with strict rules and calculations for different types of leave. We recommend you audit your payroll system and obtain legal advice to ensure you are paying holiday pay correctly.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.