Holiday pay miscalculation more than a “mistake” says Unite Union

It is simply not credible that nearly every major employer and payroll providing service made a "mistake" in calculating their annual leave entitlements.

The major problem that Unite has faced is the employer's failure to calculate annual leave as the higher of either average weekly pay or what is called "ordinary weekly pay"

This is an important concept. It is needed because sometimes a worker's status changes and when they take leave it should reflect their improved status.

For example, I may start work as a part-time worker and then become a full-time worker. When I take my holidays my leave should be paid at the full-time hours.

The term "ordinary weekly pay" has existed in law in the Holidays Act since 1944 when all New Zealand workers first got two weeks annual leave on "ordinary pay" by law. It was defined then as:

"Ordinary pay", in relation to any worker, means remuneration for worker's normal weekly number of hours of work calculated at the ordinary time rate of pay.

The exact same formulation was used in the 1981 rewrite of the Holidays Act. The 1981 Act also allowed employers to use the average weekly pay formula for each week's leave in some circumstances. But it included the caveat that:

the holiday pay of a worker in respect of any period of his annual holiday shall in any event be at a rate not less than the rate of his ordinary pay at the date when he begins to take that period of holiday.

That essentially introduced the obligation on the employer to choose the higher of the average or ordinary weekly pay. It is not a new concept.

The 2003 Holidays Act introduced some changes that made it easier for an employer to calculate what it termed "ordinary weekly pay".

It also introduced a new formulation to establish what an ordinary week's pay was when it was not clear.

This had become necessary in my view because of a proliferation of "zero-hour" type employment agreements where workers hours varied radically from week to week.

If a worker has no regular hours then the employer might have difficulty figuring out what an “ordinary weekly pay” was. The new Act specified that in those circumstances they have to choose the higher of the average for the year or the average for the four weeks before taking leave.

There is nothing "complicated" about these calculations. Most could be done on a pocket calculator. An excel spreadsheet would handle the rest.

Major employers with complex computer programming capability have no excuse to get it wrong. The same applies to payroll companies that are meant to be specialists in this.

What we have discovered is that nearly every employer we deal with, whether they use in-house or external payroll systems, calculate annual leave as an hourly, not weekly entitlement.

Recording leave in hours is completely misleading for workers. Many workers use up their "accrued" or "entitled" leave "hours" to top up miserably low wages.

I have seen pay slips where there is an annual leave payment even when the workers has done a full week's work. Employers ignore the legal obligation to only allow workers to cash up a week of their annual leave.

Workers often use up their annual leave in bits and pieces during a year and have no chance of actually having a proper holiday.

Nearly every pay slip we have from employers we deal with records leave in hours. Employers then either allocate hours to staff taking leave in some mysterious process or ask the employee how many hours leave they want.

Lawyers who have joined the public discussion have pointed out that it is impossible to comply with the law when using this method of calculation. As an email newsletter from Hesketh Henry explains:

Other problems arise from payroll systems that are configured in hours. The Holidays Act has no reference to hours and instead calculates holiday pay and other types of leave in weeks and days.

Recording and expressing holiday entitlements in hours is not complying with the Holidays Act or any employment agreement that refers to days and weeks. Calculating an annual salary on an hourly basis would seem, on its face, to also breach the employment agreement.

It seems that the problem is so massive that only a government led process can assure all workers in New Zealand are being paid properly.

The government should convene a working party involving unions, employers, payroll providers to devise solutions that can be imposed on all employers.

No employer should be allowed to claim it is all too complicated. That is a lie.

There has been large-scale theft. It appears to be deliberate. Workers must be paid their full entitlement going back as many years as is necessary.

ends

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