Interpreting the Holidays Act with KeyPay: 2 employee scenarios
Many New Zealand accountants, bookkeepers and payroll bureaus face difficulty in achieving compliance for their clients with the Holidays Act (2003). Clients may often find themselves misunderstanding the entitlements and payment rules, leading to unintended miscalculation of their employees’ holiday pay.
While the complexities of the legislation remain an issue, a modern payroll software that caters to various work arrangements, while displaying transparent leave calculation methods, can equip payroll professionals with the information and tools they need to achieve compliance.
KeyPay’s transparent leave calculations
KeyPay is a cloud-based payroll and workforce management platform built for New Zealand legislation. Its transparent leave and holiday pay calculations save users hours of manual frustration and workarounds.
3 key features of KeyPay’s leave and holiday pay calculations:
- In KeyPay, not only can users specify the total number of hours an employee works per week and per day (basic standard work hours), but users can also specify exactly when, and where, an employee usually works across a two week period/cycle (advanced work hours).
- KeyPay has a 'leave pay rates' setting where users can configure the correct leave calculation method to be applied for daily based and weekly based leave, specific to that employee.
- KeyPay’s ‘leave unit conversion panel’ provides users with a comprehensive breakdown of how the leave units are calculated - allowing payroll professionals to assess the calculation and have compliance confidence.
Let’s take a closer look at KeyPay’s leave calculation feature using two unique employee scenarios:
Employee 1: Josh Harnett
Scenario: Josh has a defined work pattern and takes sick leave over a span of 2 weeks
Josh Harnett works on reception at Waiheke Bed and Breakfast. He has a fixed work pattern consisting of 7 hour shifts on Monday, Tuesday and Wednesday, and a 5 hour shift on Saturday. Josh applies for sick leave over a 2 week period commencing from 28/10/19 to 10/11/19. He commenced employment on 3/1/19, so at the time of taking leave he has a sick leave balance of 5 days.
Breaking down the complexities
- Josh works 4 days a week for different hours on different set days, but he applies for sick leave over a 2 week period. The payroll professional must interpret how many days within this period Josh should be using as sick days
- A public holiday lies on one of Josh’s usual working days during his ‘sick’ period. As per NZ legislation, if an employee takes sick leave on a public holiday, the day should not be deducted from the leave entitlement. So, the payroll manager must account for this public holiday and ensure it isn’t deducted from Josh’s sick leave balance
- The payroll professional must also ensure that Josh is paid at the normal rate for this public holiday and that he does not receive a day in lieu
- Josh’s sick leave must be paid at the Relevant Daily Pay rate (what he would usually be paid per hour if he were to be working on these days)
- Josh’s hours differ from day to day, so it’s difficult to define what a ‘day’ is for his sick leave taken
- Using a traditional system, the payroll professional may have to perform some of these calculations manually to fit with the employee scenario, creating the risk of human error and taking up extra time in the day
How KeyPay helps
As Josh only works 4 set days a week and for different shift lengths, KeyPay knows his sick leave should not amount to the full 2 weeks. KeyPay determines the number of sick days to apply for the leave request based on Josh’s work pattern, as follows:
KeyPay also checks whether any public holidays fall on a usual work day for Josh. In this case, the public holiday on Monday 28 October is detected, and is not deducted from Josh’s sick leave entitlement. As per NZ legislation, KeyPay pays this public holiday as a normal day because Josh was sick.
To solve the issue of defining what a day is for Josh, KeyPay will ensure Josh is paid for the specific amount of hours he would work on his otherwise working days. For sick leave, KeyPay will first convert the leave to be paid from a day unit type, into hours. A context panel is displayed in the pay run explaining how the conversion is calculated:
Then, when it comes to calculating the rate of pay associated with the leave, KeyPay will look at Josh’s leave pay rate setting and check whether he is to be paid using the Average Daily Pay (ADP) or Relevant Daily Pay (RDP) rate. In this case, Josh must be paid at the Relevant Daily Pay rate because his work pattern is regular and set. Either way, both calculations methods will be displayed to provide transparency to Waiheke B&B’s payroll professional:
The payroll professional can also import historic gross earnings, including the number of days worked, into KeyPay. This ensures that when calculating ADP, all relevant earnings and data processed in another payroll system (indicated as “payroll history” in the above screenshot) were incorporated in the calculation.
KeyPay is flexible enough to manage any unique employee payroll scenario, accounting for:
- The correct amount of sick days to be applied within the 2 week period based on Josh’s work pattern
- Public holidays that need to be discounted from the sick days during the date range and then paid as a normal day
- The definition of a working day for Josh, who works different hours on different days of the week
- The correct pay rate to apply to pay Josh’s entitled sick leave, using configured settings
Waiheke B&B’s payroll professional saves manual frustration and human error with KeyPay’s automation, and transparent calculation context panels. This means there is more time for the payroll professional to focus on assisting other clients, optimising the firm's processes or growing the firm.
Employee 2: Nicolas Dupont
Scenario: Nicolas is terminated and entitlements must be paid out
Nicolas Dupont worked for Waiheke B&B for 35 hours per week, 7 hours per day, Monday to Friday. His employment ceased on 26 March 2020, and legislated entitlements need to be paid out.
Breaking down the complexities
- Nicolas has an estimated 4.8 weeks of entitled annual holiday owed, meaning he must be paid as if he were still employed during this 4.8 weeks post his termination date (between 26 March and 4 May 2020)
- In this case, 3 public holidays fall during this period, and so the payroll professional must manage and apply these rates accordingly for Nicolas' termination pay out.
- Nicolas must also be paid 8% of his gross earnings since his last entitlement date for annual holidays, excluding any Average Weekly Earnings excluded earnings
- Traditional systems are inflexible and can't be configured efficiently enough to ensure accurate termination entitlements
- Using conventional processes, Waiheke B&B's payroll professional would be performing frustrating, manual calculations, at risk of underpaying or overpaying Nicolas' entitlements
How KeyPay helps
In order to streamline this process for the payroll professional, the following steps are automated in KeyPay to calculate a termination pay:
- Determine what leave has to be paid out
- Convert the leave to be paid from a days/weeks unit type into hours. This calculation is done by looking at Nicolas’ work pattern
- Determine whether Nicolas would be entitled to any public holidays if he had still been working up to the duration of his annual holiday entitlement (i.e. his Notional Annual Holiday Entitlement Date); and
- Calculate Nicolas’ gross earnings from the commencement of his entitlement period (ensuring any earnings paid that are not included for Average Weekly Earning purposes are excluded).
All of these steps determine Nicolas’ final 8% annual holiday payment. A context panel showing all calculations is also included in the pay run:
The payroll professional can also reconcile the gross earnings amount calculated in the context panel with the ‘Pay Categories Report’. This report itemises all earnings paid to Nicolas per pay run and identifies whether the earnings are excluded from AWE.
Compliant with the Holidays Act, KeyPay incorporates all required components to calculate Nicolas’ holiday pay entitlements upon termination:
- Accurate leave balances determine Nicolas’ leave liabilities
- 3 public holidays during Nicolas’ end date and the end of his holiday entitlement period are treated and paid out accordingly
- Nicolas’ gross earnings are also calculated from the commencement of his entitlement period
- The payroll professional can cross check Nicolas' gross earnings to ensure they are excluded from his AWE
Calculation transparency for this unique scenario shows justification for every step of the process, providing confidence and peace of mind for the payroll professional.
Ensure Holidays Act compliance with KeyPay NZ
KeyPay simplifies leave calculations and automates interpretation of the Holidays Act for busy accountants and bookkeepers. To learn more about how to navigate the Holidays Act, the recent Taskforce recommendations (and approval by the New Zealand Government) and the importance of reliable payroll software, download our free guide here.