Payroll – Holidays Act and relevant daily pay

“Relevant daily pay” is a term used in the Holidays Act 2003. It is the amount that, in most cases, you have to pay employees when they have time off work for a public holiday, an “alternative holiday”, sickness or injury, or a bereavement.

By law, relevant daily pay must include certain components of the employee’s pay. In certain circumstances, “average daily pay” may be used instead of “average daily pay”. “Average daily pay” was introduced on 1 April 2011 by an amendment to the Holidays Act 2003.

Note that the law can and does change quickly. The latest on holidays legislation can be found on www.ers.govt.NZ.

When is “relevant daily pay” used to calculate pay?

An employee has to be given their relevant daily pay for the time they take off work for:

• Public holidays;
• Alternative holidays (see below);
• Sick leave (if they’re entitled to it); or
• Bereavement leave (if they’re entitled to it).

When is ‘average daily pay’ used to calculate pay?

The “average daily pay” calculation can be used if it is not possible or practicable to determine an employee’s relevant daily pay, or if the employee’s daily pay varies during the pay period in which the holiday or leave falls.

What is an alternative holiday?

An employee who works on a public holiday which would otherwise be a working day for them is entitled to an alternative holiday. They are entitled to be paid for a full day’s alternative holiday, regardless of the actual number of hours they worked on a public holiday.

If an employee was on call on a public holiday and had to restrict their activities, they are entitled to an alternative holiday, even if they weren’t called out.

If they were not required to restrict their activities and did not attend a call out, they are not entitled to an alternative holiday.

What does relevant daily pay include?

The relevant daily pay is the amount the employee would have been paid had they worked on the day in question.

Relevant daily pay includes:

• Productivity or incentive-based payments (including commission) if the employee would have otherwise received those payments on that day;
• Overtime if the employee would have received overtime payments on that day; and
• The cash value of any board or lodgings that the employer provides for the employee.

Does it include the time and a half rate for a public holiday?

No. Section 9(3) of the Holidays Act 2003 specifically states that relevant daily pay does include any amount that would be added by the requirement to pay time and a half for working on a public holiday.

Can we set an amount in the employment agreement?

The Holidays Act 2003 allows employment agreements to specify a special rate of relevant daily pay. However, the amount specified must be at least what it would be if it was calculated under the Act.

How is relevant daily pay calculated?

The relevant daily pay is clear in many cases, but if it’s not clear, or if the employee’s daily pay varies within the pay period when the holiday or leave falls, the calculation for “average daily pay” should be used (see below).

Section 9A of the Holidays Act 2003 gives the calculation that must be used for “average daily pay”. It is as follows:

where:

‘a’ is the employee’s gross earnings for the 52 calendar weeks before the end of the pay period immediately   before the calculation is made; and

‘b’ is the number of whole or part days during which the employee earned those gross earnings, including any day on which the employee was on a paid holiday or paid leave, but excluding any other day on which the employee did not work.

For example for full-time salaried work

The employee has a salary of $40,000 per year, which divided by 52 equals $769.23 (gross) per week.

She works 5 days per week, so her weekly pay is divided by 5, making her relevant daily pay $153.85.

Examples of part-time salaried work

Example 1 – The employee works part-time and has a salary of $30,000 per year, which divided by 52 equals $576.92 (gross) per week. He works 4 days per week, Monday to Thursday, so his weekly pay is divided by 4, making his relevant daily pay $144.23.

However, if the public holiday falls on a Friday, or he needed sick or bereavement leave on a Friday, he would not be entitled to his relevant daily pay because he doesn’t normally work on that day.

Example 2 – The employee works part-time and has a salary of $30,000 per year, which divided by 52 equals $576.92 (gross) per week. She works 6 hours per day, 5 days per week, so her weekly pay is divided by 5, making her relevant daily pay $115.38.

For example for irregular hours

The employee’s daily pay varies because he is paid a piece rate, and is allowed to work as many hours as he wishes, so long as he works for at least 4 hours every weekday.

His total gross earnings (“a”) in the last 52 weeks were $26,000. He earned those gross earnings over 260 days (“b”), including paid leave, but not including unpaid days off.

The employee’s average daily pay would be as follows: