An Employer’s Guide To Leave Loading

As an employer, you have a number of obligations to your employees. This includes ensuring they receive their leave entitlements and providing them with a safe workplace. 

In some cases, employers may have an obligation to provide holiday pay. Holiday pay is an additional payment employers make to their employees when they go on annual leave. 

Let’s take a look at what holiday pay is and how you can meet your employer obligations in New Zealand. 

What Is Holiday Pay In New Zealand?

Holiday pay in New Zealand refers to the additional payment employees receive when they go on annual leave. It is usually paid along with the normal pay during the regular pay cycle. 

The typical rate for holiday pay is 8% of an employee’s gross earnings. This is not a uniform number and it can vary based on the employee. 

Holiday pay was created as a way to reimburse employees for expenses that resulted from being on holidays. Being on leave means that employees cannot accumulate pay for working outside of their usual hours, such as overtime. Holiday pay was created to compensate for this. 

What Is Annual Leave?

Annual leave is the paid, yearly holiday employees are entitled to take. In New Zealand, full time employees get 4 weeks of paid annual leave. 

Annual leave is a legally protected right set by the Employment Relations Act 2000 and therefore cannot be overridden by any alternative agreements or contractual clauses. In other words, if you have full time employees, you must allow them 4 weeks of paid annual leave.  

Part time employees are also entitled to annual leave, however, it is usually calculated based on the amount of hours they have worked. 

In some instances, employers can force their employees to take annual leave. However, this must be done carefully and only under limited circumstances.   

Is Holiday Pay Compulsory?

Holiday pay will apply to all employees. However, for those that are entitled to holiday pay, the answer is yes. It is compulsory to pay holiday pay to those employees that are meant to have it – more on this below!

Who Is Entitled To Holiday Pay?

Holiday pay is a statutory right, so its entitlement really depends on the employment agreement. Certain industries have a requirement that employees working in that field must receive holiday pay when they are on annual leave, whereas others do not. 

In order to see whether the industry you are in carries the award of holiday pay, you can search for it on the Employment New Zealand website. 

How To Calculate Holiday Pay

As we mentioned earlier, the usual rate for holiday pay is 8%, however, it will depend on the employee and the industry as awards tend to differ. In order to get more tailored information for the holiday pay amount you owe your employees, enter the relevant information on the Employment New Zealand website so you can know more. 

Once you have confirmed the rate for holiday pay, you can calculate the amount your employees are owed. 

Example Mike earns $650 a week. His holiday pay amount is paid at a rate of 8%. The calculation for his holiday pay will look something like this:  $650 x 4 = $2,600   $2,600 x 8% = $208 Mike’s holiday pay payment is $208.

How Does Holiday Pay Work In New Zealand?

Holiday pay is a national right, therefore, it will not differ across regions.  In Auckland, holiday pay is just as applicable as it is in Wellington or Christchurch. The same applies for industries that qualify for holiday pay awards. 

So, for instance, a construction worker in Auckland that is entitled to holiday pay can expect the same rates if they decide to do the same job in another region. 

Employment New Zealand Holiday Pay 

Holiday pay is protected by Employment New Zealand. As an employer, if you fail or refuse to pay holiday pay to you employees that should be receiving it, then you are in breach of Employment New Zealand regulations. 

Employers can be penalised for not following through on the obligations under Employment New Zealand, so it’s essential to ensure you are compliant. 

Is Holiday Pay Paid On Termination?

Yes, if you terminate an employee who is entitled to holiday pay, then any annual leave and holiday pay they are owed will need to be paid out. 

Example  Phoebe works for a large corporation that is downsizing. She’s paid a standard salary and still hasn’t taken her four weeks of annual leave at the time of receiving her termination notice.  Phoebe’s employers will need to pay out the 4 weeks of annual leave she did not take and the additional holiday pay amount.

Is KiwiSaver Payable On Holiday Pay?

Yes, KiwiSaver is payable on holiday pay. KiwiSaver is paid earnings that are considered ‘ordinary time earnings’ which is essentially pay for normal hours of work. Any work that is done outside of it such as overtime or holiday pay does not contribute to KiwiSaver payments. 

Holiday pay is considered part of ordinary time earnings, and therefore, KiwiSaver must be paid on it. If you decide not to pay KiwiSaver on holiday pay, then you must provide a sufficient explanation to the Inland Revenue Department.  

What Are My Other Employer Obligations?

As an employer, holiday pay is one of the many obligations you have towards your employees. People spend a good chunk of their time at work, which means their work environment must be one that supports their wellbeing. 

All employers have a duty of care towards their employees, where they need to ensure their employees are not harmed physically or psychologically at work.  

This also falls under general Work Health and Safety obligations employers have towards employees. Workplace health and safety sets the standard for creating a positive environment for employees to work in, whether they are working remotely or in the office. 

To know more about your workplace health and safety obligations, click here.  

Key Takeaways

Holiday pay payments are an important responsibility employers need to fulfil if their employees qualify for it. To summarise what we’ve discussed: 

• Holiday pay payments are the additional payments employees receive on top of their usual pay, during annual leave
• Annual leave is the paid holiday time employees are entitled to 
• All employees are entitled to holiday pay, however, it is compulsory to pay it to those that are meant to receive it under their employment agreement
• Holiday pay entitlements and rates will vary based on the industry, it’s best to visit Employment New Zealand for more information  
• Holiday pay applies nationally
• If an employee is terminated before they can take their annual leave, they should have their annual leave and holiday pay paid out to them 
• KiwiSaver is applicable to holiday pay payments 

If you would like a consultation on holiday pay or other employer obligations you may have, you can reach our team of employment lawyers at 0800 002 184 or [email protected] for a free, no-obligations chat.

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