Holidays Act 2003 frequently asked questions (FAQ)

Background – What is the problem?

Workers may not be getting their correct holiday pay entitlements. When the Holidays Act 2003 came into force a number of payroll providers created payroll software with incorrect rules applied for calculating holidays and other forms of leave.  This has resulted in some underpayments to workers for entitlements related to annual leave, bereavement and sick leave, public holidays and alternative holidays (lieu days). This means workers may not have received all they are entitled to.

Since this issue arose some employers have corrected the payroll issues and back paid their workers, or they are in the process of getting their systems audited. Other employers have not begun the process.

How individuals will be affected will vary greatly across the industries E tū covers.  Both public sector (such as hospitals and government departments) and private sector workers are affected.

Who is most affected?

Workers employed on variable/changing weekly hours or pay (including normal pay, overtime, allowances, commissions and bonuses) are particularly likely to have been underpaid. Workers with more regular hours of work and pay may be affected but to a smaller degree.

What leave is affected by these issues?

Annual holiday pay (annual leave), payments for public holidays, alternative days (lieu days), bereavement, sick leave, EREL, and domestic violence leave are all affected.

How did this happen?

Many payroll systems were set up to calculate leave entitlements in hours and as a result they may be making mistakes causing underpayment, such as:

  • Annual leave may not take into account the correct timeframe over which average earnings have to be compared to ordinary pay.
  • Incorrect leave accrual calculations are based on the hours worked when the leave entitlement arose, instead of being based on the hours worked when you take the leave. If payment has been based on your earlier hours (at the point of entitlement) there could be a shortfall in the payment.
  • Overtime and allowances might not be added to the hourly rate when calculating daily holiday pay.

Some payroll systems are set up correctly and workers are paid correctly but many workers are missing out.

How far back can a backpay claim related to underpaid leave entitlements go?

Back pay can be claimed for up to six years and in some circumstances, with the employer’s agreement, a claim may be able to go beyond that time period.

How much could I receive in back pay?

Money owed will vary because each worker’s circumstances vary.

How do I find out if I am getting all the holiday leave I am entitled to? 

Some initial questions you can ask your employer:

  • Has your employer begun an audit of their payroll system for compliance with the Holidays Act 2003? If so, find out what company or organisation carried out that audit and keep a record of that information.
  • Was the payroll system sourced from outside New Zealand e.g. India or Australia? That makes it more likely the system has been set up incorrectly for New Zealand workers.
  • Has your employer stopped doing payroll themselves, with your pay now being done offsite by another company?

Review your payslip

Annual holiday leave is calculated using the greater of two figures – either your “ordinary weekly pay” or your “average weekly earnings”, which is calculated over the 12-month period before the annual holiday is taken.

For example, if you do lots of overtime throughout the year, it’s possible the average weekly earnings figure will be higher and is the figure that should be used to calculate your annual holiday leave. 

Calculation of other types of holidays leave (including sick leave and bereavement leave), public holidays (not worked) and alternative holidays (lieu days)

The above entitlements are calculated by working out your “relevant daily pay” (RDP). RDP is what you would have overwise earned and been paid for the day if you had worked it. RDP includes things like allowances, overtime, incentive-based payments like commission, if those payments would have been received had you worked.

Keeping that in mind, look at your payslips for those periods when you have been paid for sick leave, bereavement leave, public holidays, or alternative leave days. Those who are paid their base hourly rate for 8 hours (or whatever shift length) whenever they take sick or bereavement leave, alternative holidays, or a public holiday (not worked), should treat this as a possible warning sign. Perhaps discuss these concerns with a work colleague or delegate, show them your payslip and see if they agree with you.

So, we have worked out we think there is a problem from our review of my payslips – what next?

Take your payslip evidence and any other information you have compiled and raise this with your manager. Ask that they refer the matter to payroll and to investigate.

Request their response in writing.

Remember you can discuss this with a co-worker or delegate and inform E tū by contacting Union Support. Email [email protected] or call 0800 1 UNION (186 466).

What am I entitled to for annual holiday leave and how is it calculated?

The minimum annual holiday leave entitlement under the Holidays Act is four weeks per year. A four-on-four-off shift worker, a 12-hour shift worker, a 10-hour shift worker and an 8-hour Monday to Friday worker will all have differing entitlements because a ‘week’ will be different for each group.

When you go on annual leave, you should get the higher of two calculations: the amount you are paid right now, or the average of your earnings over the last 52 weeks. If you have done a lot of overtime, the payment you receive when you go on annual holiday leave will be higher than your ordinary pay.

What about the calculation for my other leave entitlements?

Other leave includes: sick leave; bereavement leave; payment for observing a public holiday; payment for an alternative holiday that you are given to make up for having worked on a public holiday (previously called lieu days); EREL (leave for attending union courses), and domestic violence leave.

The Holidays Act deals with these entitlements in days and the amount payable for one of these days is your “relevant daily pay rate” (RDP) which is a combination of your ordinary pay, any overtime you would have worked that day, plus allowances, production bonuses and more.

In some workplaces, the RDP can be quite a bit higher than just multiplying the number of hours you would have worked by your hourly rate. 

If you have any questions that are not answered here please send your questions to [email protected] and we will update this FAQ regularly to support your investigations into your holiday pay and other leave entitlements.

Click here for more information about checking your pay.

Click here to do a short quiz to see if you’re likely to be owed holiday pay.