Author: David Jenkins, NZPPA CEO

If an employee takes annual holidays continuously over multiple pay periods, the practice (confirmed by MBIE) is to calculate the value of leave based on the first week and apply the value to the following weeks as long as it is a continuous period of annual holidays that is taken.

NZPPA often receives questions from businesses and payroll practitioners who have been recalculating annual leave for each week taken, even when the leave is taken continuously. There are also payroll systems that do this automatically, not giving payroll any option to do it another way.

In this short post, I want to update you on a new position NZPPA has now accepted on how FBAPS leave impacts the period of continuous service used to calculate the value for the annual holidays taken.

FBAPS leave taken during a period of continuous annual holidays

The issue arises when an employee takes multiple periods of annual leave concurrently while also taking FBAPS leave. So the employee is off on leave, but not for a continuous period of annual holidays.

A typical example is when an employee is on annual holiday and a public holiday falls during that period. So, the employee takes their annual holiday entitlement, and then a public holiday is taken (so the public holiday is an otherwise working day and is being taken, not worked). And then following the public holiday, they take a further period of annual holidays (so they are on leave for the whole period and do not return to work).

NZPPA’s position has been that annual leave has been broken and not continuously taken, as FBAPS leave has been taken in between. Consequently, leave would need to be recalculated for the second period of the annual holiday taken. This was based on the wording of Section 21 and the original MBIE direction, which did not address whether FBAPS leave was taken between multiple periods of annual holidays before returning to work.

Example of FBAPS not included as part of continuous employment:

An employee works Monday to Friday and has worked for 18 months, so they have four weeks of annual holiday entitlement. They apply for two weeks of continuous annual holidays, and it is approved. In the second week,  Labour Day falls on the Monday, which is otherwise a working day for the employee. They will take this as a public holiday taken while on leave. This means they will take one week of annual holidays, followed by Labour Day, and then the remaining days of the second week are taken off as annual holidays.

In this situation, the following calculations would be undertaken by payroll:

• Calculating annual leave using the greater of AWE vs OWP to determine the value of the first week (Section 21), then
• For the public holiday (taken), use RDP or, if the day cannot be determined, ADP
• Calculating annual leave using the greater of AWE vs OWP to determine the value of the second week (Section 21), then calculating the rate for the portion of the week (four days).

Updated approach

As NZPPA was starting to get conflicting views on this area, we approached the MBIE Labour Inspectorate for clarification, and we received (with thanks) the following guidance, which will now become NZPPA’s position:

FBAPS taken during a period of annual holidays do not break or reset the annual holiday period. It is still one continuous period of annual holidays. Only a return to work will break the continuity.

As you have pointed out, some payroll software recalculates pay for annual holidays if:

• The annual holidays span multiple pay periods
• Any FBAPS are taken during the annual holiday period
• An employee’s pay rate increases during the time on annual holidays.

The legislation only requires annual holiday pay to be calculated based on pay just before the annual holidays are taken. This means a recalculation will only be compliant if it results in an employee being paid equal to or more than their entitlement for the annual holiday as calculated at the beginning of the period.

What does this mean for payroll?

Using the previous example, NZPPA’s new approach would mean the following in payroll:

• Calculating annual leave using the greater of AWE vs OWP to determine the value of the first week (Section 21), then using the rate specified for the first week and adjusting as part of a portion of a week for the second week’s annual holiday taken (four days).
• For the public holiday (taken), use RDP or, if the day cannot be determined, ADP.

In conclusion, the present Holidays Act will be around for some time yet. So, you still have to stay on top of its complexity and manage changing interpretations and positions from wherever they come to ensure compliance with an Act not written to fit with payroll.

NZPPA always listens to all views and forms our position based on what the Act says, case law (if any) and interpretation when available. The key is to maintain a clear view of all the moving parts, rather than ignoring them, so that a workable solution can be found for payroll.