You're creating a pay for an employee that includes an amount of Annual Leave, and you see a line in the Earnings section that reads Holiday Pay In Advance - Holidays Already Paid. This line has an associated deduction that partially or completely cancels out the value of the Annual Leave Taken. What's happening here?
This deduction will most commonly appear for employees who were previously receiving Holiday Pay as You Go (HPAYG). If the employee then changes to receiving Annual Leave, their anniversary remains the same and they'll still receive 4 full weeks of Annual Leave when they cross that anniversary.
As a result, they have to pay back any HPAYG before receiving any payment for Annual Leave. This prevents the employee from essentially being double paid for that leave.
What do I do now?
In many cases, this will be the correct approach for ensuring the employee repays the Holiday Pay they've been paid in advance, in which case you don't need to do anything. However, in some cases, it may be that the employee's transition to accruing leave wasn't handled correctly, or that the employee was never on HPAYG and their opening balances were simply entered incorrectly.
Each of the sections below cover the appropriate way to handle a given scenario.
Employee was on HPAYG while on a Fixed-Term contract
Where the employee was receiving Holiday Pay in Advance while on a Fixed-Term contract and has now become permanent, this deduction is the correct way to manage the Holiday Pay they've been paid and will continue to apply until the balance of Holidays Already Paid reaches $0. The employee will be paid normally when taking Annual Leave after that point.
As an example:
If an employee works on Holiday Pay As You Go for 6 months, they will be paid 8% Holiday Pay instead of becoming entitled to any paid Annual Leave. If they then become a permanent employee for the next 6 months, upon crossing their 12 month employment anniversary, they will still become entitled to the full 4 weeks of Annual Leave.
However, the employee was already paid out while working on Holiday Pay As You Go for half of the year, and been paid for the equivalent of 2 weeks of leave during the first half of their year of employment.
When this happens, PayHero deducts the value of the Annual Leave that has already been paid to an employee as 8% Holiday Pay while they were on Holiday Pay As You Go, until the balance is repaid.
This is in accordance with section 28(3) of the Holidays Act -
Employee was on HPAYG while having an Intermittent Or Irregular Work Pattern
For employees who were instead on HPAYG because their work pattern was intermittent or irregular, you can choose to either:
- Use the same approach as above, in which case PayHero's processing is correct, or
- Restart their employment at the time they become permanent (though ensure that their Sick Leave balance and anniversary are reset to the original dates after restarting the employee).
You can find more details on processing employees switching to permanent here: Changing Pay-As-You-Go Employees to Permanent.
If this is the approach you wish to take, but it was not applied at the time of the employee becoming permanent, there are a few extra considerations to ensure this is handled correctly.
- Change the employee's Start Date on their Employment tab to the beginning of their new employment
- Update their Holiday Earnings on the Leave tab with the appropriate gross earnings since the beginning of that permanent employment. You can run the Employee Earnings Summary Report with an appropriate date range set to get the employee's total gross earnings since the date of the re-start
- Set the Holidays Paid Out value to 0
- Set the Next Anniversary to the next leave anniversary they are due to cross
- If they have already crossed their old anniversary date in error they may have received Annual Leave that they may not yet be entitled to, if they haven't yet crossed their new anniversary date. The Annual Leave balance may require adjustment if this is the case.
Employee Never Received HPAYG
Finally, if the employee has never been on HPAYG, or otherwise been paid a lump sum of Holiday Pay (not to be confused with taking or cashing in Annual Leave), then the Holidays Paid Out value is likely an error.
If so, you should set their 'Holidays Paid Out' balance to $0 to remove that debt and then re-add the employee to the draft pay.