Calculating pay for annual leave

This page contains information about how payments for annual leave are calculated.

For instructions on paying annual leave using Ace Payroll, visit Pay annual leave.

Daily pay for annual leave is calculated either from  the employee’s ordinary weekly pay, or from their average earnings. Ace Payroll calculates these rates automatically for you - all you need to do is confirm them.

Note: This page contains information about pay rate calculation for employees continuing their employment after a full year's service .
For instructions on the payment process, see Paying annual leave .
For instructions on paying casual employees, see Paying holiday pay to casual employees   and Calculating holiday pay for employees with irregular work pattern s.

Pay rates for annual leave

Ace Payroll calculates pay rates for annual leave rates automatically for you - all you need to do is confirm them.

Annual leave pay rates are defined by section 21 (Calculation of ordinary holiday pay) of the Holidays Act 2003.

You are required to pay the greater of:

• the employee’s ordinary weekly pay as at the beginning of the annual holiday, or

• the employee’s average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday.
  

Ordinary weekly pay is a term defined by section 8 (Meaning of ordinary weekly pay),   and means the greater of:

• An employee's usual pay at the time of taking the holiday, or

• The employee's average earnings over the previous four weeks.

Daily pay for annual leave is calculated either from the employee’s ordinary weekly pay, or from their average earnings 

Summary

The daily rate of an employee taking a holiday requires the comparison of three different rates and the selection of the greater. The three rates are your employee’s:

• usual pay

• four week average

• 12 month average

If you are confused by the above, don't worry - Ace Payroll handles the complexity for you.

Calculating pay rates in Ace Payroll

When you pay holiday pay to an employee who is continuing their employment after a full year's service, Ace Payroll will automatically show the following screen. It provides a list of the three pay rate calculations required by section 21.

Pressing the report icon next to any of the pay rates produces a detailed report of the calculation.

You do not need to select a pay rate at this point.

To open this window, start at the front screen and click Calculate Pays > Leave > Holiday Pay > Next

Annual Average

This is the calculation required by Section 21(2)(b)(ii), and is the employee's average weekly earnings for the 12 months immediately before the end of the last pay period before the annual holiday.

Four Week Average

This is the calculation required by Section 8(2) , and represents average earnings over the last four weeks.

Current Usual

If you have entered a standard pay for the employee, then it is shown here.

Confirming the daily rate

After you have entered the days your employee has taken or will be taking as annual leave, click the Confirm Daily Rate button to open the following window.

Ace Payroll automatically selects the correct rate by itself.

Click GO to accept the suggested daily rate, or enter a different value manually. Be aware that the suggested pay rate is the legally required minimum pay rate.

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