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When you change how many hours or days an employee works in a normal week, you also need to update the amount of leave they will accrue each year, to ensure they receive the four weeks of leave they're entitled to.

According to the Holidays Act 2003, annual holidays are measured in weeks. All employees (except casuals) are entitled to 4 weeks of annual holidays per year, no matter how much they work. This means if an employee works 3 days per week, then their week of annual holidays is equal to 3 days of work. Likewise, if an employee works 5 days a week, then a week of annual holidays for them is equal to 5 days of work. In other words, a week of leave is always defined at the time the employee takes the leave, not when they accrued it.

When you first set up an employee in MYOB Essentials, you entered their opening leave balance and the amount of leave they should accrue each year. When their working week changes, you'll need to update their available and accrued leave balances so that they still have the same number of weeks of leave.

This way an employee always gets at least 4 full weeks of leave per year regardless of whether their working hours change.

For example, if an employee works 40 hours per week, they're entitled to 160 hours of leave per year (4 X 40 = 160).

If that employee takes no leave all year, they will have accrued 160 hours of leave. But if that employee then reduces their working week to 20 hours, 4 weeks of leave for them now equates to 80 hours (4 X 20 = 80). So their accrued 160 hours would equate to 8 weeks leave.

Since payment for leave is calculated using weekly averages, they’ll be paid for 8 full weeks using the average of time during which they were working 40 hours. Because of this they’re being overpaid in time and money.

The reverse is also true—an employee who works 20 hours a week and accrues 80 hours of leave, then goes up to a 40 hour work week will only get 2 weeks of leave, paid out using the average of time during which they were working 20 hours. They’re being underpaid in time and money.One of the most challenging areas of the Act to manage is keeping accurate balances of Annual Holidays entitlement when your employees have varied working patterns or change their working hours; this is because Annual Holiday entitlement is provided by the Act in weeks and most of us think about and manage our work and holidays in days and hours.

Because MYOB Essentials determines Annual Holiday entitlements for your employees in hours, you'll need to be able to demonstrate how those hours translate into the equivalent of 4 weeks Annual Holidays. It is also important that you adjust the balance for any change in your employees work pattern. This entitlement to holidays needs to genuinely reflect their working pattern at the time of any Annual Holidays taken.

To manage Annual Holidays for your employees you need to ensure you have an agreement with them on what a working week means (i.e. how many hours), this must genuinely reflect their working pattern at the time of any holidays taken. It is important to ensure that this is always accurate and up to date in MYOB Essentials as it is used to manage the entitlements and calculate rates of pay for Annual Holidays.

For example:

• Your employee worked 20 hours per week and their annual leave entitlement was 80 hours (i.e. 4 weeks x 20 hours)
• At the time of a change in work hours they had 60 hours of his entitlement remaining. This can be calculated as 3 weeks (60 hrs / 20 hours = 3 weeks).
• Their work hours increase to 30 hours per week. To ensure that they still have 3 weeks of leave available, their entitled balance needs to be increased to 90 hours (3 weeks x 30 hours)
• If no adjustments were made, your employee would lose 1 week of leave as 60 hours of leave would only equate to 2 weeks at 30 hours per week.
• In this case the available balance in MYOB Essentials will need to be updated to 90 hours to ensure that your employee still has 3 weeks of leave available. MYOB Essentials will guide you through this process when an employee's working week changes.

If an employee's working week changes

When you change an employee’s working hours, MYOB Essentials will prompt you to update their leave balances on the Leave tab of their employee record. You may need to adjust the employee’s:

• Annual entitlement
• Available balance, and
• Estimated leave accrued since anniversary

Suggested adjustments are provided on the Leave tab alongside each of the fields you need to change.

Annual entitlement

This is the amount of leave (in hours) the employee accrues during the year. This should be entered as hrs/year (fixed) and not weeks (pro-rata). The amount in this field should be equal to their weekly working hours times four (although you may choose to give them more).

For example, if the employee originally worked 40 hours per week, they'd be entitled to 160 hours of leave per year (4 x 40 = 160). If their hours change to 20 hours per week, you should update this value to their new entitlement of 80 hours of leave per year (4 x 20 = 80).

In both cases, this is equivalent to four weeks at their normal hours.

Available balance adjustment

The Available balance is the amount of leave the employee became entitled to at their last anniversary date and has not yet used. Employees become entitled to their leave all at once, once per year, on the anniversary of their employment start date.

When the employee's hours change, this amount also needs to be updated, to make sure the employee has the same number of weeks of leave available as before their hours changed.

For example, say an employee originally worked 40 hours per week, and had 120 hours of leave available, which is equivalent to 3 weeks. If their hours change to 20 hours per week, this 120 hours now equates to 6 weeks of leave, which is more than they had before. Instead, they should now be entitled to 60 hours (3 weeks x 20 hours = 60 hours). To fix this, adjust their available leave balance to 60 hours by entering an adjustment amount of -60 in the Available balance adjustment field (120 - 60 = 60).

Estimated leave accrued adjustment

The Estimated leave accrued since anniversary is an estimate of how much leave they have ‘accrued’ since their last anniversary, but are not legally entitled to take yet. This leave is added to the employee's available leave balance each year on their anniversary date, and it is then available to take.

For example, say an employee works 20 hours a week and has 40 hours (2 weeks) of Estimated leave accrued since anniversary. That employee then goes up to 40 hours a week, so their Estimated leave accrued since anniversary must be doubled to 80 so that they still have 2 weeks of accrued leave. To fix this, enter an adjustment amount of 40 hours in the Estimated leave accrued adjustment field (40 hours + 40 hours = 80 hours, which is equivalent to 2 weeks at 40 hours per week).

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