Payment for Annual Leave – many employers either underpay or under-accrue. Do you get it right?

The Holidays Act specifies that Annual Leave must be paid out at the greater of "ordinary weekly pay" and "average weekly pay". Now, ‘Ordinary weekly pay’ is the pay the employee would receive under his or her employment agreement for working an ordinary working week, which is often pretty easy to determine. But, where an employee usually works more than the ordinary/minimum working week per their Employment Agreement, the Holidays Act provides a formula for “average weekly pay”, which is the correct rate for annual leave.

One thing to be wary of is when an employee often works less than an ordinary working week as defined in their employment agreement. This may happen, for example, if they are often away due to illness and take unpaid leave. In this case, they are still entitled to be paid their 4 weeks of annual leave based on their ordinary weekly pay even though they haven’t fully “earned it”. Payroll systems should get this calculation right – but many small companies don’t.

Need help managing staff?

Mike has a wealth of experience advising on every aspect of the employer-employee relationship. I can give you per-phone guidance or work along side you to make things happen.

Keeping You Posted

11 April 2024

Essential Update - 11th April 2024

Read Now >
10 January 2024

Essential Update - First update of 2024

Read Now >
4 December 2023

Final 2023 Essential Update

Read Now >