Changing Days per year for Holiday Pay

For an employee who is entitled to 4 weeks holidays (or more) per year, the number of days a week is defined as for the purposes of holiday pay might change if the employees contract changes.

The information below gives some suggestions by way of example, but your actual case may depend on what you have agreed with your employee - for example what is in your contract with your employee.

If you are not sure what you should do, please contact the Labour Department (now called "Ministry of Business, Innovation and Employment" or MBIE) for advice based on your particular circumstances.

 

Example 1 - changing from 3 days to 5 days per week

Steve's contract specifies he works a regular 3 days per week, and so his annual holidays are 4 weeks times 3 days = 12 days per year. Steve's contract then changes to a regular 5 days per week, so his annual holidays become 4 weeks times 5 days = 20 days per year.

Steve started on 12 August a few years ago, so his holiday pay anniversary date is 12 August each year. He became entitled to 12 days holidays on his last anniversary. It is now October, and Steve is changing from 3 days per week to a regular 5 days per week.

Before the change, Steve's regular week is defined as Monday 8 hours, Tuesday 8 hours, and Wednesday 8 hours. You would see this information when you go to the Time Sheet under "Enter Current Pay", where it shows to the upper right as "Regular Hours Worked per Day".
The holiday pay set up information (under "Add & Edit Employees" on the "Holiday Pay" tab) is as follows:

The first thing to change is the top set up information - the 3 days per week will be changed to 5, and the usual annual entitlement will automatically recalculate to 20 days:

This will not change the balance information below, since how you change the balance may depend on your agreement.

The Holidays Act ultimately defines holidays in "Weeks" rather than "Days" or "Hours", but obviously it is much more logical to pay holidays in days (or hours) so everyone pays these in days or hours. But because the Act talks about annual holidays only in "weeks", you could say that before the change, the employees balance was 9 days, and 9 days were equivalent to 3 weeks (3 weeks times 3 days gives 9 days). So you might decide that after the change the employee should still have a balance of 3 weeks - but 9 days is no longer the same as 3 weeks. Three weeks would now be 15 days, so changing the balance to 15 days means the employees balance is still 3 weeks.

You could adjust the balance by changing the "B/fd from previous yrs" box. In the above example, if we change "B/fd from previous yrs" to 6 days, the balance will change to 15 days:

You would usually leave the next anniversary date (in this example 12 August) as it is.

If it has been agreed for any reason to leave the balance as it was (9 days) then you would obviously not make the change above. In either case when the employee reaches their next anniversary they will become entitled to an additional 20 days since this is now their annual entitlement.

The "regular hours" as set up under "Enter current pay" on the "Time Sheet" for this example would change from Mon 8 hrs, Tue 8 hrs and Wed 8 hrs to 8 hours Monday to Friday:

 

So what does this mean? What are the effects?

Note that because the ordinary weekly pay is increasing, then the ordinary pay is going to be larger than the last 52 weeks average for this example, so the last 52 weeks average can be ignored.

To keep things simple for this example, Steve earns $100 per day. So before making the changes, if he left, his termination value would have been 9 days times $100 = $900 (plus 8% of gross as per Holidays Act).

After making the changes, if we leave the balance as 9 days, then the termination value will be the same as above: $900 (plus 8% of gross).

If we change the balance to 15 days, then the termination value will be higher. It will be 15 days times $100 = $1500 (plus 8% of gross as per Holidays Act). This higher figure does make sense since the employee when taking holidays (or being paid holidays) should be paid according to the greater of the past 52 weeks average and the current ordinary pay - and obviously a week of ordinary pay is now greater than it was before.

Again if you are not sure what to do in your situation please contact the "Labour Department"/"Ministry of Business, Innovation and Employment" for help and advice.

 

Example 2 - changing down from 2 days to 1 day per week

The same could apply to an employee whose regular week is decreasing.

To start with, John's regular week is 2 days per week, and he has 8 days of annual leave per year - 2 days per week times 4 weeks.
John's balance is currently 8 days (that is, he still has 4 weeks holidays available to take).

John's contract changes to work a regular 1 day per week, and a week of holidays is changed to be just 1 day - so he is now entitled to 4 days per year.

If the balance was left as 8 days, then this is now the same as 8 weeks of holidays, so changing the balance to 4 days will now equate to 4 weeks. To reduce the balance, you could change the "B/fd from previous yrs" to a negative number, or you might find it easier to just reduce the "Added Last Entitlement Date" box. Either gives the same effect.

The Effects of the above

To keep things simple for this example, John earns $100 per day. So before making the changes, if he left, his termination value would have been 8 days times $100 = $800 (plus 8% of gross as per Holidays Act).

After making the changes, if we change the balance to 4 days (same number of weeks but as 1 day per week), then the termination value will be the same as above: $800 (plus 8% of gross). This in most cases would be the best thing to do.

HOWEVER, if we leave the balance as it is at 8 days, the termination value suddenly jumps up. This is because the Holidays Act says that Holiday Pay is paid at the greater of the last 52 weeks average and the current ordinary rate. Since the employees weekly pay has decreased, then the last 52 weeks average will be greater than the current ordinary weeks pay for a whole year. The average will gradually decrease as the larger figures drop off the end. In this example, the termination value will be 8 days times $200 per day immediately after the change, giving termination value of $1600 (plus 8% of gross). THIS IS UNLIKELY TO BE WHAT YOU REQUIRE, but if it is for some reason, do not change the balance.

Here is how the calculation is made:
Last 52 weeks gross pay = $10400.
Average weekly pay over last 52 weeks = $10400 / 52 = $200 per week. This is greater than the ordinary weeks pay which is now $100.
We have now changed a week to be 1 day in the holiday pay set up, so $200 divided by 1 day gives $200 per day.
This means leaving the balance as 8 days gives a result of $200 times 8 = $1600.
So you can see how in this case adjusting the employees balance to account for the difference in a week makes sense.