This article explains how annual holidays work in Employment Hero Payroll. Under the Holidays Act 2003, employees are entitled to four weeks of annual holidays after 12 months of continuous employment. Each business has system-created leave categories for annual holidays by default.
As per the Holiday Act 2003, employees are entitled to 4 weeks of annual holidays after 12 months of continuous employment with their employer and then after every 12 months of employment.
By default, each business will have system created leave categories configured for Annual holidays.
Please note that the 'hours worked' accrual method is not compliant with the Holidays Act. As per NZ legislation, Annual Holidays can only be accrued in weeks.
Managing annual holidays is easy with a few simple settings, firstly, we draw your attention to the configuration of the default leave categories:
Default Leave Categories
Firstly, we draw your attention to the configuration of the default leave categories for annual holidays:
Annual Holidays: this represents the annual holidays entitlement that kicks in upon the employee's entitlement period. When employees want to submit a leave request, this is the leave category they must use.
A few notes on the setup of annual holidays are as follows:
- Automatically accrues based on the employee's leave year: This setting allows you to define when the employee's leave year (for this leave category) will commence, as opposed to assuming that leave will commence accruing from the employee's start date.
- Leave entitlement to start after? For annual holidays, this has been set for leave entitlement to start after 12 months from the employee's start date. This means that once the employee reaches their 12 month employment anniversary date, within the relevant pay run period that their anniversary date falls within, the employee will accrue their annual holidays entitlement in full.
- Standard Allowance = 4 Standard Weeks per year: This setting applied for annual holidays entitlement allowance is set at 4 standard weeks per year.
- Accrue in advance: This setting is ticked because the employee is entitled to the full amount of annual holidays when the entitlement period kicks in.
- Accruals for this leave category are limited to a maximum of: This setting has been applied to cap the amount of leave that the employee can accrue in a year. For annual holidays, this is 4 weeks.
- Carry over a maximum of: This setting has been applied to carry over the entire balance of any unused leave that carries over to the next entitlement period.
Setting up Annual Holidays for an employee
The crucial step here for the employee's annual holidays entitlement to accrue correctly, is to ensure the employee's start date is recorded accurately in the employee's details page.
You will notice that annual holidays does not accrue per pay run, this is intentional, as it is not a concept found in the Holidays Act 2003. For more information please refer to https://www.employment.govt.nz/leave-and-holidays/annual-holidays/taking-annual-holidays/
The annual holidays entitlement will automatically kick in the relevant pay run period that the employee's employment anniversary date falls within.
Annual holidays leave entitlement will then be included in the employee's leave balances as shown in the above example.
After the annual holidays' entitlement is allocated to the employee, you may notice in the following relevant pay run for the employee, an annual holidays leave adjustment (as per above example) will display, this shows that the annual holidays maximum of 4 weeks has been reached for the leave year and the entire amount has been carried over.
Pay Run Warnings
Within a pay run, you will notice at times a "Warnings" tab appear with a list of warnings pertaining to that pay run.
One warning of relevance here is the "employee may have missed leave entitlement".
This warning is useful as it will identify to the payroll administrator which employees may have missed their leave entitlement. A scenario where the employee may have missed their leave entitlement is if the employee is excluded from the pay run in the pay period that the leave should have been accrued in. This warning will appear in the next pay run and will display until you manually accrue the leave in a pay run for the employee.
To manually accrue leave, within employee row of a pay run, go to 'Actions' button, then 'Accrue Leave'.
Then from the drop down, select 'Annual Holidays' and input 4 weeks. Ensure you click on the calendar icon as shown below which will enable the yearly accrual cap. Then click on 'Save'.