Is my payroll compliant? (NZ)

The Holidays Act provides a set of rules that all payrolls and employers should adhere to - they're not that difficult if commonly held beliefs are suspended and the actual law is considered. This guide gives you a basic overview of how leave rules are meant to work in New Zealand.

After considering how the rules are meant to be implemented, the following questions should be asked both by staff of their employer and by employers of their payroll supplier:

  • My payslip shows annual leave in hours or days
    • This is non-compliant. The Holidays Act was devised to protect employees in both time off from work and the value paid for that time off and specifies that leave accrues in weeks (there is an exception for workers whose hours are so irregular that a regular week cannot be determined)
    • Using hours or days does not correspond to weeks if there is any variance in work or earnings and it makes it extremely difficult to gauge against the requirements of the Act.
    • Some payrolls try to use average hourly rates etc., however the result typically disadvantages the employee.
  • My payslip shows my accrued annual leave balance increasing every pay period
    • Unless it specifically states the value shown is an ESTIMATE then the information is not compliant with the Act and is incorrect (even if it is an estimate), as it is showing you an incorrect entitlement to leave
    • Most payrolls that do this perform some kind of complicated adjustment on termination which is difficult to explain to an employee when they thought they had an entitlement to what is shown on their payslip
    • The Act stipulates that annual leave accrues annually, not per pay period.
    • The Act also stipulates that an anniversary date cannot be changed except once in the first year of employment for a compulsory close-down where the anniversary date may be set to a common company anniversary date, or where the employee been on extended leave without pay.
    • If your leave is accruing each pay period and it's not clear that it is an estimate then you are effectively having your anniversary date changed and your entitlement to termination pay could legitimately be vastly more than your employer is expecting. Your termination value could arguably be the balance indicated plus 8% of all earnings since your last real anniversary.
    • If it is clear that the value is an estimate only then your termination value could be significantly less than you are expecting.
    • Estimated leave balances and accruals per pay or month are wrong in so many ways
  • My employer calculates 8% of my earnings and keeps that aside for me to use when I take annual leave
    • In every case we have ever seen this ends up disadvantaging the employee and is totally non-compliant
    • It doesn't take account of changing averages in weekly earnings
    • It fails to account for allowing 4 weeks time off
  • I get 8 (or a fixed number of) hours at my ordinary pay rate for each public holiday (or sick etc)
    • If you work irregular hours, earn overtime, productivity payments or allowances that reflect your skill or responsibility, or work on public holidays then very likely to you are being underpaid for your time off
    • If your employer does not know exactly what you would earn for daily leave then they must use Average Daily Pay (based on days paid over the last 52 weeks). Some payrolls do not record that information and base it instead on the employee's nominal contract days (which may also have changed during the year) - such systems are non-compliant and cannot accurately pay staff for leave taken.
  • I'm on a salary and occasionally catch up on work or required to work on public holidays
    • Being on a "salary" does not exempt your employer from the requirements of the Holidays Act - in fact the Act specifically prohibits a salary package being used to compensate an employee for any of the leave provisions available under the Act (basically, a salary means nothing)
    • If you work part of a public holiday then you are entitled to penal rates for the time worked. Whilst your employer may simply pay your salary for that day they must also pay you the extra penal amount for the time worked - they actually only need to pay you for the time you worked plus penal rates which may be LESS than your normal salary. If you would usually have worked that day then you are also entitled to a WHOLE DAY off as Alternative Leave.
    • A consequence of the extra earnings for a public holiday also means your Average Weekly Earnings has increased, so you should expect more than your salary for any annual leave you take.
  • If I work 4 hours on a Public Holiday my employer gives me 4 hours Alternative Leave - is that right?
    • If you would normally have worked that day (if it wasn't a public holiday) then you are entitled to the time worked at penal rates PLUS a WHOLE DAY of alternative leave that you can take later on.
    • When you take your Alternative Leave day you must be paid your Relevant Daily Pay (if known) or Average Daily Pay - seldom will this be equivalent to the 4 hours you worked.
  • If I work on a Public Holiday my employer pays me penal rates for the time worked and pays out the Alternative Day in the same pay (or pays me 2.5 times the hours worked or 2.5 times the rate)
    • You are entitled to a whole day off on a day of your choosing (and agreement with your employer).
    • The Act exists to protect your entitlement to a day off and your employer cannot pay out your Alternative Leave without you requesting and taking that day off (after 12 months of not being used it is possible to cash that day out with your consent)
  • My employer won't let me take annual leave until my accrual occurs or my balance goes into credit
    • Legally your employer can deny you any leave if it has not rightfully accrued, however employers need to be reasonable (as do employees)
    • If your termination value (your theoretical leave value if you left after last pay period) is significantly more than the value of the leave you wish to take then your employer should use reasonableness in granting you time off
    • If your employer grants you leave in advance of entitlement then they are incurring a possible 8% penalty on that payment if you subsequently terminate before your next anniversary - and they may consider that risk if rejecting your request.
  • I started the week before a public holiday - am I entitled to be paid?
    • If you would normally be expected to work on that day if it wasn't a public holiday, then yes you are entitled to be paid for that day
  • I've taken annual leave starting before a public holiday and returning after the public holiday - am I entitled to be paid?
    • If you would normally be expected to work on that day if it wasn't a public holiday and you hadn't been on annual leave, then yes you are entitled to be paid for that day (and your annual leave consumed would be less because of that day, or you would take one additional day)
  • I've been on leave without pay (or ACC, or sick) and would have returned to work on that day had it not been a public holiday - am I entitled to be paid?
    • If you would normally be expected to work on that day if it wasn't a public holiday, then yes you are entitled to be paid for that day
  • I'm a casual agricultural employee working in an orchard/vineyard and the season starts before a public holiday - am I entitled to be paid for those public holiday/s?
    • If a crop needs harvesting/planting/trimming and you would reasonably be expected to work on those days if they weren't public holidays, then you are entitled to payment for those day/s if you take them off, or penal time plus an Alternative day if you work on those days.
  • I'm a casual employee working in an orchard and paid based on bins filled (or I make garments and paid per item completed) - how do I know I'm being paid correctly?
    • Your employer must record your hours (and you should too) and regardless of the amount you earn per bin/item you must not be paid less than your hours x the minimum pay rate (plus 8% if you are casual)
    • Fairness applies to all employment relationships, and should your employer find you continually being topped up they may well not call you in for further work
  • An employer and employee may agree on how an employee’s entitlement to 4 weeks’ annual holidays is to be met based on what genuinely constitutes a working week for the employee.
    • Many payroll systems rely on this to "comply" with the Act without providing the basic rules defined in the Act as either options or default provisions. Rarely does the contract include such agreement, making such methods non-compliant.
    • Many payroll systems do not have any means of identifying a regular vs. irregular employee which also leads to non-compliance
    • Such an agreement should only occur where the employee's work pattern is so irregular that a normal working week cannot be defined. To use this method for a regular hours employee, a salaried employee etc. would be non-compliant (examples available as to why this doesn't work out for any employee, let alone those mentioned)
    • In any case the time off and amounts paid (both dimensions protected by the Act) must be no less than if the employee had been accruing leave in weeks, thus requiring the employer/payroll to measure the minimum entitlements in weeks against the method they are using
    • Consequently, there is seldom, if ever, a good reason to use a method other than weeks, and if you do then you need to be able to compare the results obtained as if you had implemented weeks to ensure your employee is not being disadvantaged.
  • I work in the Armed Forces - am I covered by all these Holidays Act entitlements?
    • Sorry, the Holidays Act specifically excludes the Armed Forces 
  • Other typical non-compliance
    • Manual payroll systems (it is next to impossible for manual payroll to comply with the Act)
    • Payroll does not accrue, value and consume annual leave in weeks (by agreement as to what constitutes a week then another method may be used, however it cannot be less than the minimum requirements of the Act had they been using weeks as the basis)
    • Payroll does not accrue, value and consume sick leave in days
    • Payroll does not correctly value other daily daily leave types by using Relevant Daily Pay or Average Daily Pay (requires capturing days paid accurately)
    • Payroll does not cater for Parental Leave (many refer to the Act but implement nothing to aid the employer in calculating correct value of annual leave that accrued whilst on Parental Leave or in the 12 months following the return to work)
    • Employers knowingly using non-compliant methods with a payroll system that could be compliant if used correctly



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