Author: David Jenkins, NZPPA CEO

One of the main issues from a very long list of issues with the Holidays Act is the incorrect use of terms when referring to an agreed leave type when it is actually in regard to a leave entitlement provided under the Act.

This post will discuss why an alternative holiday received under the Holidays Act should not be called “a day in lieu” as there are two totally different leave types, one being provided by law and the other by agreement.

An alternative holiday is a reward for working on a public holiday that is an otherwise working day for an employee. This is a leave entitlement provided by law. A day in lieu is an agreed leave entitlement for the purpose of not paying for additional hours worked, but accumulating and then taking that time at a later date. A day in lieu is not linked to a public holiday unless it is agreed as such. But if that was an otherwise working day for the employee, it is an alternative holiday in the first instance anyway. So why call it something other than what it actually is by law as this creates confusion.

What are the differences between a day in lieu and an alternative holiday?

Example A:  Receiving an alternative holiday

Peter always works Mondays and there is a requirement contained in his employment agreement that he works public holidays.  He works Labour Day and gets time and a half for the hours worked (Section 50), and an alternative holiday as Monday is his otherwise working day (Section 56).

This is as per the Act and the day provided from working the public holiday is an alternative holiday.

Other requirements of an alternative holiday by law include the following:

  • There is a range of rules by law in regard to when an alternative holiday is earned and taken (Section 57).
  • After 12 months, it can be paid out by agreement (Section 61).
  • On termination, it can be paid out on the value of the final day of employment (Section 60).
  • How an alternative holiday is calculated is based on RDP and if that cannot be determined then ADP.

Example B:  Receiving a day in lieu

Peter also works some additional hours from time to time and it has been agreed between himself and his boss that he won’t be paid overtime. Instead, he can accumulate those additional hours until it totals a day and he then takes it as an agreed normal workday off paid at the ordinary rate (nothing different from what he would have been paid).

So, it means that when Peter has worked bits and pieces of time over a period, he can take a normal working day off by agreement at a later date.  The agreement could also state that the day accumulated must be taken within a specific timeframe or it will be lost. In addition, it can be agreed that the time accumulated should not be greater than a day (thereby keeping it manageable). An agreement is also required for the rate that is to be applied and whether it can be paid out on termination. The bottom line is that a day in lieu is all about not paying any additional payment to the employee, rather it’s about taking time within the standard week for the employee at the ordinary rate of pay.

Also, a day in lieu really does not need to be in a payroll system as the employee is getting paid exactly what they would be paid in their usual week.  The management of days in lieu for an employee can easily be done from a manager’s diary.  The only reason it usually ends up in payroll is because HR wants to centrally report on its use across the business and the logical place to do this is payroll.

Additional points to note about “a day in lieu” include the following:

  • There are no rules in law.
  • It is an agreed term.
  • It does not need to be included in a payroll system.
  • It is not an additional payment and does not have defined calculations in law.
  • It is not paid out on termination (unless it is agreed to do so).

What about your payroll system?

There are still a number of payroll system suppliers that have alternative holidays stated as a day in lieu and this is more than 19 years since the Act was implemented.

Points to consider with your payroll system:

  • A payroll system should have an alternative holiday as a specific code for this type of leave provided by law.
  • An alternative holiday earned is a day of entitlement. It should not have value until taken as it is based on a day taken in the future.
  • Under Section 81, there is a range of record-keeping requirements for an alternative holiday that may or may not be included in your payroll system. There is nothing in law stating it has to be retained in a payroll system, but it must be retained somewhere.
  • If days in lieu are going to be recorded in payroll, then you should create a separate code to record this type of leave.

So in conclusion, a day in lieu and an alternative holiday are two totally different leave types and SHOULD NOT be referred to as being the same thing.  There are enough issues with the Holidays Act, we don’t need to add to them.

NZPPA supporting payroll since 2007!

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