The Business Advisory Blog

The Business Advisory Blog

Insight, news and updates from Alliott NZ Chartered Accountants, Auckland New Zealand. The views expressed here are the views of the author and should be discussed in further detail should an article be relevant to your individual circumstances.

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Best practice and how to calculate it

Kiwi business, especially those involved in contracting and service industries often close for annual holidays just prior to Christmas and re-open in the New Year. Many businesses encourage their Staff to take leave over the festive season 'when things are quiet'. Staff employment agreements will include provision for staff to take at least part of their annual leave during this close down period. The calculation of holiday pay is an integral part of employees' final pay for the calendar year.

Employees are entitled to receive their pay for annual leave before they commence their leave. This provision provides an employee with money to pay for travel & accommodation.

The employer and employee can agree to leave the normal pay cycle undisturbed by the time off work. If so, it's recommended that the employees' employment agreements reflect this.

Calculating annual holiday pay

Whichever of the following is the larger becomes the rate of the weekly holiday pay:

  1. 'Average weekly earnings': Calculate 'total gross earnings' for the 12 months before the end of the last pay period before the annual holiday and divide this figure by 52.
  2. 'Ordinary weekly pay': Multiply the ordinary hourly rate of the employee's pay as at the start of the holiday by the number of hours worked in a 'normal' week.

Calculating pay for statutory (public) holidays

  1. 'Relevant daily pay': FInd the amount of pay the the employee would have received if he or she had worked on the day concerned.
  2. 'Average daily pay' is used when using relevant daily pay is not possible or practicable or there is a variation in the daily pay during the pay period when the holiday occurs. Calculate gross earnings for the 52 weeks before the end of the immediately preceding pay period and divide the number of whole or part days during which the employee earned those earnings including days of paid holiday or leave.

In the case of employees who have commenced employment during the year, their average weekly earnings are calculated by taking the amount of their gross earnings from starting work until the last pay period before the holiday and dividing that amount by the number of weeks worked. For examples on holiday pay please visit the Ministry of Business, Innovation and Employment website:

Pay calculations can be complex especially when employees receive allowances, (e.g. travel) and can have deductions made (e.g. KiwiSaver, student loan) so contact us if you need assistance in getting these important calculations right.

Topics: calculating holiday pay IRD tax tax on earnings