Understanding Holiday Pay for Variable Hours
In New Zealand, employees are entitled to paid annual holidays. For employees with variable hours, the calculation of this holiday pay involves specific rules to ensure fair compensation [Source: Holidays Act 2003, s 16]. This article outlines the key legal provisions for calculating holiday pay for those working variable hours.
Entitlement to Annual Holidays
After completing 12 months of continuous employment, every employee is entitled to 4 weeks of paid annual holidays [Source: Holidays Act 2003, s 16]. This entitlement applies regardless of whether the employee works fixed or variable hours.
How Holiday Pay is Calculated
When an employee takes annual holidays, they must be paid the greater of their "ordinary weekly pay" (OWP) or their "average weekly earnings" (AWE) [Source: Holidays Act 2003, s 21]. This calculation method is designed to ensure employees do not experience a financial disadvantage by taking their entitled leave, especially those with fluctuating work patterns.
Ordinary Weekly Pay (OWP)
Ordinary weekly pay (OWP) is generally the amount an employee receives for an ordinary week's work [Source: Holidays Act 2003, s 8(1)]. For employees with variable hours, determining a consistent OWP can be challenging.
If an employee's hours of work or their pay for those hours are so variable that it is not possible to determine their OWP, or if the calculation of OWP would result in a figure that is less than the employee's average weekly earnings over the 4 weeks immediately before the annual holiday, then average weekly earnings must be used instead [Source: Holidays Act 2003, s 8(1)(b), s 8(2)].
Average Weekly Earnings (AWE)
Average weekly earnings (AWE) is a calculation of an employee's average earnings over a specific period [Source: Holidays Act 2003, s 9(1)]. It is calculated by dividing an employee's "gross earnings" (defined below) over a specified period by the number of weeks in that period [Source: Holidays Act 2003, s 9(1)].
For the purpose of annual holidays, AWE is usually calculated over the 12 months immediately before the end of the last pay period before the annual holiday [Source: Holidays Act 2003, s 9(1)]. However, as noted above, a 4-week AWE calculation is also used to compare against the OWP [Source: Holidays Act 2003, s 8(2)]. This means that if an employee's earnings have recently increased, the shorter 4-week average might be higher than their OWP or their 52-week average, leading to a higher holiday pay amount.
What Constitutes Gross Earnings?
Gross earnings include all cash payments made to an employee. This typically covers wages, salary, allowances, overtime payments, and productivity or incentive-based payments [Source: Holidays Act 2003, s 13]. Certain payments are excluded, such as reimbursements for expenses incurred by the employee and payments that are wholly discretionary on the part of the employer [Source: Holidays Act 2003, s 13]. Gross earnings form the basis for calculating both OWP and AWE [Source: Holidays Act 2003, s 8(1), s 9(1)].
Employer Obligations
Employers have a legal obligation to correctly calculate and pay all holiday entitlements [Source: Holidays Act 2003, s 21]. This includes ensuring that the correct method (greater of OWP or AWE) is applied for employees with variable hours. Employers must also keep accurate records of employees' hours worked, leave taken, and payments made for at least six years [Source: Holidays Act 2003, s 81].
Employee Rights
Employees have the right to receive their correct holiday pay as per the Holidays Act 2003 [Source: Holidays Act 2003, s 21]. If an employee believes their holiday pay has been incorrectly calculated or not paid, they have avenues to seek resolution, such as raising a personal grievance [Source: Employment Relations Act 2000, s 103].
When to Seek Independent Legal Advice
When facing complex employment situations, particularly those involving variable hours, pay discrepancies, or unresolved disputes, employees and employers should consult with an employment law professional or an employment mediator. Guidance can also be sought from official bodies such as Employment New Zealand or from Community Law Centres for free legal assistance.
Key Resources
- Holidays Act 2003: https://www.legislation.govt.nz/act/public/2003/0129/latest/whole.html
- Employment Relations Act 2000: https://www.legislation.govt.nz/act/public/2000/0024/latest/whole.html
- Employment New Zealand - Holidays and Leave: https://www.employment.govt.nz/leave-and-holidays/
- Community Law Centres Aotearoa: https://communitylaw.org.nz/