Holiday Pay Calculations

Exo Payroll follows the Holiday Pays Act when calculating an employee's holiday pay value. We have spent a lot of time trying to perfect the way that the holiday pay calculates and we believe there is a way suitable for everyone! The current holiday pay entitlements at any given time are kept in the Holiday Pay tab of the Open Employee screen. We have taken elements of the Holiday Pay act and incorporated them into this screen

The Normal (Percentage/Days) Method & the Average Daily Rate

The law requires a Full-time Employee who has become entitled to Holiday Pay to be paid four weeks of their average weekly earnings or four weeks of an ordinary week's earning at the time they are taking holiday, whichever is the greater. For practical reasons, Employers want to break down the average weekly earnings to the average daily earnings as people often want to take one day or part only of their holidays. This can be achieved by dividing the Gross paid by 260 days, which equals 52 weeks of 5 days and paying a total of 20 days per year of this daily average.

Employers also have people who fall into the category of Section 17 of the Holiday Pay Act, meaning that employees who have not worked a full year, but intend being full-time and would like to take some part of their holiday in advance of entitlement.

Clause 5 of Section 17 suggests that once the full year has been worked their total holiday pay should be calculated on the same basis as those under section 16. So then we can set up the same calculation method for both categories. (4/52 of Gross or 20/260 of Gross) or if higher (4 x ordinary weekly pay at time of Holiday or 20 x daily average of weekly pay at time Holiday is taken.

Exo Payroll can do this all automatically for you if you are applying the right rules for the individual. But please note the following:

In breaking an average weekly earnings down to a Daily Average Rate for Holiday Pay you must make sure that you are dividing an average weeks pay by the correct number of days.

If you set the entitlement days as 20 days, then you are defining a week's Holiday Pay to have 5 days only regardless of whether a worker earns his weeks earnings over more than 5 days. It is important then to never regard a week "for holiday pay calculation purposes" as having more than 5 days even when people work 5.5 to 7 days, so that the average daily rate of a weeks pay can be worked out accurately. (Gross divided by 52 weeks divided by 5 days gives the daily average of the weekly average)

If a person sometimes works 4 days and sometimes 6 days per week and the person is a full time person expected to work 52 weeks in a year then it is best to maintain the days worked at 5 days per week. (For holiday calculations a year has 52 weeks of 5 days which = 260 days) To reach a true daily average for the holiday year you do not want the days paid to either exceed or be less than 260 days for the whole holiday year.

The only time the 5 days would be increased would be if extra pay for holidays or Public holiday is being paid and included in the weeks pay before they are actually taken. So that in the end you are still reaching 260 days per year.

The Ordinary Daily Rate vs the Average Daily Rate

Enter the ordinary wages and ordinary days paid for those wages into the Standard Pay.

In paying holiday pay, the system will value a day's worth of holiday pay at the higher of the Ordinary Daily Rate or the Average Daily Rate.

Ordinary Daily Rate

The Ordinary Daily Rate dropdown on the Holiday Pay tab of the Employee Maintenance window provides three options for how the Ordinary Daily Rate is calculated:

Standard Pay - the Ordinary Daily Rate sums from the Standard Pay (the standard contracted wages + allowances liable for holiday pay in the Standard Pay) and divides by the ordinary days paid over that period. If the Standard Pay is not defined, i.e. the Standard Pay gross is zero, the system will use the 4 Week Average (see below).
4 Week Average - the Ordinary Daily Rate is calculated as the gross earnings for the last four weeks divided by the days paid for the last four weeks. This is useful for casual employees who work irregular hours, or employees who have a basic pay but often have extra earnings to be included in the calculation for leave, such as regular overtime or commissions.
Higher Rate - the Ordinary Daily Rate is the higher of their Standard Pay or 4 Week Average rate. This option can be useful for employees who occasionally work overtime, but mostly work to their Standard Pay, e.g. employees doing seasonal work.

Average Daily Rate

An accrual, which is kept in the Holiday Pay tab of the Open Employee screen. This accrual takes the sum of gross liable for holiday pay and divides by the ordinary days paid, for the last 12 months.

This accrual increments each time a pay is updated. Each increment is calculated as follows:

Sums from the Current Pay, standard contracted wages + allowances liable for holiday pay + weekly overtime wages (week's wages in surplus of the standard wages + weekend's wages) and divides by the ordinary days paid over that period.

There is a clause in the Holiday Pay Act which indicates that the rate of pay may not be less than the rate of the ordinary pay as at the date in which the employee takes leave. If the average daily rate for the year is lower than the current rate of pay, the ordinary daily rate calculation is used instead. This is why both rates should be maintained.

Paying Holiday Pay

There are three basic situations in which you could pay holiday pay:

When the employee has no outstanding entitlement, the system can pay the day in advance of the entitlement, at the higher of the ordinary daily rate or the average daily rate. At end of year rollover, in the holiday pay screen, the system will reduce the accrued entitlement by 1 at the end of the year rollover, so in effect only 20 days are still given in total.

When the employee is terminated, the system can pay the outstanding day at the higher of the ordinary daily rate or the average daily rate plus apply the entitlement percentage to the current year gross liable for holiday pay to date inclusive of the Current Pay and exclusive of the termination value itself, to form a percentage amount

Holiday Pay Units of Measurement

Employees will often want to take their holidays in days rather than weeks. Therefore instead of using average weekly earnings the payroll goes by the average daily earnings. Some companies prefer to pay holiday pay by the hour, the system can cater for this also, see the Holiday Pay Options section of the Leave Management Setup window.

Zero Pays

Note that the system will not accrue days paid if the gross amount in the pay is zero. Therefore if there is no pay for an employee he/she will not accrue Days Paid. If an employee goes on leave and they were being paid their normal wages plus three weeks of holiday in the same pay, you would enter 20 days paid at the time of payment and leave the system to accrue 0 days paid for the following three weeks. This is specifically for employees who are away for 1 or more complete weeks.

Effect of Pay Increase

If a person's wages have been increased recently, then their ordinary daily rate will become irrelevant. The Payroll will look at two figures:

The average daily rate that has been calculating over the last 12 months
The daily rate in the Standard pay. It will decide which is the highest, then multiply this figure by the days you select to pay

Employees who do not work for part of the year

Scenario: A person who will only work 46 weeks in the year - they may have school holidays off without pay. This employee could be set up as a Permanent Part Timer and this would give them the right number of days, provided you controlled the number of days, dividing the Holiday pay year correctly in the Current Pay. Alternatively, do not use the Permanent Part-time method but do following:

This person's entitlement can be worked out as follows:

They are entitled to the same proportion of four weeks paid (20 days paid) as the weeks worked is to 52 weeks.

Divide 46 weeks by 52 weeks = "percentage of year worked" which is 0.8846%

20 day Holiday per year multiplied by 0.8846 % = "Percentage of days entitlement" which is 17.69 days paid

Or 20 divided by 52 = 0.3846 days accrued per week

Multiply this by weeks worked = 46 x 0.3846 = 17.69

If you know this and set the entitlement days to 17.69 and make pays zero when not paid so the days worked would finally amount to 46 weeks or 230 days. The gross paid will be divided by the days worked to determine the average daily rate: 17.69 days of this rate would be paid which would be equal to 4 weeks of the average weekly pay for a whole year.

If the average daily rate is higher in the Standard Pay due to a recent increase, you will be paying the 17.96 days at this higher rate. If you leave the year's entitlement at 20 days, the payroll will calculate the 20 days at the higher rate.

Doing the above does not mean that the person would not be entitled to being away four weeks or that you are not paying them four weeks of their average weekly pay for the whole year - that is exactly what you are doing, as well as covering the possibility of a higher rate of pay at the time of taking holiday.

Termination Pay

A) For Termination Pay: If a full year has not been worked, 8% of gross will be paid, less any amount already paid.

B) If days are owed from the previous year, these will be paid at the average daily rate for the last 12 months, unless the ordinary daily rate evaluates to be higher, in which case the latter is used. The system will then add any holiday entitlement for the current year from (A) plus 8% of the current leave (excluding the termination value itself).