In addition to the processes laid out by our How Annual Leave & Holiday Pay Work article, there are a few additional aspects to note around Annual Leave in PayHero.
What is a Week?
When an employee crosses their employment anniversary, 4 weeks of annual leave becomes due to them. When an employee takes annual leave, their balance should be reduced by the portion of a week (or weeks) the employee took. With leave being processed by PayHero in terms of Days, how do we determine what a Week looks like for any given employee?
Work Pattern - If you've set the Work Pattern on the employee to 'Hours Per Day', 'Hours Per Week' with Monday to Friday ticked, or 'Days Per Week' then PayHero knows exactly how many days the employee works in a week. This will be used to determine the employee's current leave balances, as well as what portion of a week to deduct when they take leave.
In this example, the employee has 20 days of leave per year, and each day of leave they take will reduce their Current Leave Due by 0.2 weeks (one fifth of a week).
Work Pattern Review Period - For employees with a Work Pattern set to 'Hours Per Week' without Monday to Friday ticked, or 'No Regular Week', PayHero will use a review period to determine what a 'week' of leave looks like.
The employee's current leave balances (and portion of leave to deduct if they take time off) at any point in time will be calculated using the employee's average days per week for the Review Period. In the below example, our default setting of 8 weeks will apply, so their last 8 weeks of pays will be assessed to calculate their average days per week.
You can adjust this review period as required - to learn more see our Payroll Settings support article.
Since this review period will be used in determining Annual Leave payments, it’s vital both the employer and the employee are in agreement around entitlements.
Under s21 of the Holidays Act 2003, to determine payment for annual holidays, the portion of the annual holiday entitlement taken must be agreed. This must be determined in relation to the employee’s work pattern at the time the holiday is taken. Employers and employees are strongly advised to discuss the issue of how the entitlement is to be provided in good faith at the start of employment (or when work patterns change) and agree up front as much detail as possible.
Ideally, this should be recorded in the employment agreement. For employees whose work pattern is not predictable upfront, what genuinely constitutes a working week at the time annual holidays are taken will need to be determined by agreement with reference to the employee’s recent work pattern.
Review Period - Employment Agreement Clause
We suggest that a clause is included in the employment agreement describing how the portion of entitlement taken will be determined. In this example we use a Work Pattern Review Period of 8 weeks e.g.
1.1 Determining portion of entitlement taken
The employee and employer agree that the employee’s leave entitlement is apportioned in weeks, and the portion of leave taken will be paid and determined in accordance with the employee’s recent work pattern over the past 8 weeks.
For the purpose of determining the portion of the employee’s entitlement to annual leave that has been taken it is agreed that the following calculation will be used:
Number of days taken as annual leave
Average days per week from recent work pattern over past 8 weeks