New Zealand Payroll

Everything you need to know about paying your NZ based staff

COVID-19 and KeyLink #4 How all this affects Leave - Updated 11 April 2020

28 March 2020- 15 min read

Operations

Many of you will have heard me describe working with the Holidays Act being like riding a bicycle downhill, backwards, and everything being on fire.

The Holidays Act is no longer fit for purpose and our current situation highlights this.

So now you have more decisions, your choices depend on how you are paying your staff through this time and how you want that decision to affect employee’s leave entitlement and payments.

Here are the payment approaches we have heard of so far:

  1. Operating as (un)usual / work from home
  2. Paying 100% of normal income
  3. Paying 80% of normal income and optional Leave top up
  4. Wages Subsidy only.
  5. Wages Subsidy and optional Leave top up
  6. Leave Payment and optional Leave top up

Options 1 and 2 have no affect on leave. So, if you have chosen those options you can stop reading.

Option 5 and 6 are now the same and have the same affect as 3 & 4.

Other Leave

Other Leave includes: Sick, Bereavement, Alternate Public Holidays, Public Holidays and Domestic Violence Leave.

Entitlements to Other Leave don’t change.

Payments for Other Leave could change if you reduce the employees hours.

Other Leave is paid at Relevant Daily Pay, or if that isn’t possible or practical, Average Daily Pay.

As you have determined the hours you are planning to pay your employees while they are not working, you can now use Relevant Daily Pay.

It can now be the new hours per day you have negotiated with your employees.

So if you are using LWOP to reduce hours, use LWOP on another day or apply it equally across all days.

If you have reduce employee's rates, then their normal hours at their new rate.

If your leave is recorded in hours, use the hours per day you have come up with. Remember to enter the days as well.

If your leave is recorded in days then enter the number of days to be paid.

For Public Holidays, see my later blog post here: https://www.keylink.co.nz/blog/effect-of-covid-19-on-statutory-holidays-not-worked 

Annual Leave

This is the tricky one.

Annual leave is defined in weeks.

An employee becomes entitled to 4 weeks of Annual Leave per year.

A week is defined when the employee takes their leave, not when they become entitled to it. This causes huge problems when an employee’s contract is varied.

For example, if Mark was working 40 hours per week at his last anniversary and his leave is in our system in hours, he received 160 hours of Annual Leave.

Let’s assume Mark has not taken any leave since his last anniversary.

If you reduce Mark’s hours to 32 hours per week, in theory his Annual Leave balance should be converted to weeks before the change, so 160 / 40 = 4

Now converted back to hours 4 * 32 = 128, so his new leave balance is 128 hours. He has lost 32 hours of leave.

However, when Mark takes leave it will be paid at the higher of his ordinary weekly earnings and his 52-week average. So, if Mark takes Annual Leave the first week after the change to his hours, his ordinary will be 80%, but his Average could be 100% of his old rate.

(If you are confused by all this, remember the bicycle)

So how do we avoid the drama? Use Leave Without Pay (LWOP)

Instead of reducing hours or rates, use LWOP to make up the employees’ hours until you have decided what the future holds.

Annual Leave Entitlements will still be granted at 100%

Annual Leave will still Pay at 100%

Once you know what the future holds, you can negotiate any permanent Employment Agreement changes with your employees.

These negotiations can then include the effect on their Annual Leave Balances.

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Evan Lyon

Evan Lyon

KeyLink owner, 25+ years experience in designing, building and running mission critical IT systems. More than 12 years experience supporting and using payroll systems.

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