Annual Leave, also known as Annual Holidays or Holiday Leave, is paid time off work to provide employees with time for rest and recreation. Annual Leave shouldn't be confused with Holiday Pay, which you can learn more about here: Holiday Pay
Check out the sections below to learn how Annual Leave works:
- Entitlement to Annual Leave
- Accruing Annual Leave
- Annual Leave Balances
- Requesting Annual Leave
- Paying Annual Leave
- Frequently Asked Questions
Annual Leave is a yearly entitlement allowing employees to take time off for rest and recreation. The most important things to know about this entitlement are:
- The minimum annual entitlement is 4 weeks of leave.
- Annual Leave becomes due to employees at the completion of each year of continuous employment, on their anniversary.
- Employees carry over any unused Annual Leave from one entitlement year to the next.
- While it's common to think about Annual Leave in hours or days, as those units are often more meaningful to employees, it's important to ensure balances are calculated back to weeks to ensure compliance with the Holidays Act. You can learn how PayHero manages this here: Calculating Annual Leave in Weeks
MBIE has more information on employee entitlement to Annual Leave here.
When an employee's Annual Leave anniversary date is included in a pay in PayHero, their annual entitlement to Annual Leave will be accrued. This can be seen in the 'Leave Accrued' section of the employee's pay:
Important: note that the leave balance won't be updated to reflect their new entitlement until the pay containing their anniversary has been Sent.
An employee's Annual Leave anniversary date will be either:
- After reaching their first 12 months of continuous employment, or
- on their Annual Leave entitlement anniversary (12 months after they were last entitled to Annual Leave).
Annual Leave balances can be viewed by navigating to the employee's Leave tab and scrolling down to the Holiday Leave section.
The balances displayed are:
Current Leave Due - Displays the amount of leave this employee currently has due. This is leave that has become due from crossing anniversaries, less any leave they've taken.
You can change the units of Current Leave Due displayed by clicking the weeks drop-down list and choosing days or hours (only applicable if the employee has a Work Pattern set with enough details for PayHero to convert the weeks balance into other units, or sufficient pay history for calculations).
Next Anniversary - This date is the employee's next upcoming leave anniversary. For new employees, this will be 12 months after their selected start date.
Holidays Due - Shows the total amount of leave due in weeks.
To view the history of when Annual Leave was accrued (or taken), download the employee's Holiday Leave History Report.
Each line in this report shows when one of the employee's balances changed. The Action column will indicate 'Pay' for changes that occurred as the result of a pay being processed, while lines showing 'Edit' are the result of manual changes to the employee's record.
The Annual Leave details displayed are:
Weeks Due - The total amount of current leave due for the employee at the time of the change, in weeks.
Annual Leave Taken (Weeks) - For 'Pay' actions, this will show the total of any annual leave taken in the pay, in weeks.
Ordinary Weekly Rate ($) - The Ordinary Earnings divided by 4. This is one of the Annual Leave Rates, of which the highest will be used when paying Annual Leave.
Average Earnings ($) - For 'Pay' actions, this is the total gross earnings (less any exempt earnings, such as discretionary payments) for the employee for the prior 52 weeks. This is used for calculating the Average Weekly Rate.
Average Weekly Rate ($) - The Average Earnings divided by 52. This is one of the Annual Leave Rates, of which the highest will be used when paying Annual Leave.
Next Holiday Anniversary - The next anniversary for the employee. When a pay crossing the anniversary is sent, the anniversary date will be updated to the following year.
You can add Annual Leave requests for your employees via the Leave tab. See more details on creating requests in the following article: Leave Requests.
If your employees have been invited to use PayHero, they'll be able to submit their own leave requests, as seen here: Leave for Employees. These will appear in the Leave calendar to be actioned by a Team Manager or Administrator.
In the Leave Request pop-up, set the Leave Type dropdown to Annual Leave and specify the details for the request.
The fields displayed will include:
Requested - The total requested days of leave, based on the selected 'Start' and 'End' date of the request. This will be calculated based on the employee's normal working days. For example, if they request leave from Monday - Sunday, but only work Monday - Friday, leave will be recorded as 5 days, not 7. You can learn more about how PayHero determines the working days for different types of employees here: Otherwise Working Days.
Leave requests spanning only 1 day will always count as 1 day of leave, regardless of whether it's a normal working day for the employee. If this is not a normal work day for the employee, consider whether they should be taking the day as leave before approving the request.
Other Leave Requested - If the employee has other leave requests which fall between today's date and the date of the new request, the total other days Requested will be displayed here. Ensure the employee's balances (below) are sufficient to cover both the Requested and Other Leave Requested amounts, or that you're happy for the employee's balance to become negative if they are taking more leave than is available.
Total Estimated Leave - A combined balance of leave currently due to the employee, plus their 'estimated' balance for the current year. You can learn more about how estimated leave is calculated here: Employees - Leave. If your company allows employees to take leave in advance, this balance is the balance to check.
Leave Due - Leave which is currently due to the employee. This is leave that has become due from crossing anniversaries, less any leave the employee has taken. If your company doesn't allow employees to take leave in advance, this balance is the balance to check.
Annual Leave is paid using the highest of the employee's Ordinary or Average Weekly Pay Per Day. The option for Normal Daily Pay is also available for salaried employees, or when using a quantity of hours.
Ordinary Weekly Pay Per Day (OWP) - The average weekly rate over the last four weeks, divided by the number of days normally worked per week.
Average Weekly Pay Per Day (AWP) - The total gross earnings over the past 12 months, divided by the number of weeks worked and then divided by the number of days normally worked per week.
Normal Daily Pay - The regular hours per day paid at the employee's normal rate. Note - this rate will only be included in the automatic calculations for salaried employees, as it's assumed that salaried employees will have a more set 'ordinary' pay, while hourly rate employees usually have more variability which is captured in the calculated Ordinary and Average rates instead.
Within the draft pay, you can click the blue info icon on the pay line to see the calculation details for each of the rates:
You can learn more about these rates, including how to override them if required, here: Annual Leave Rates.
Frequently Asked Questions
With annual leave being stored and managed in weeks to ensure compliance with the Holidays Act, it's important to ensure that employees can still request leave in units that make sense to them - days or hours.
PayHero will manage the conversion of leave from weeks into days or hours for you, based on each Employee's Work Pattern. You can learn more about how weeks are converted into days or hours for each work pattern here: Calculating Annual Leave in Weeks
Annual Leave is the yearly entitlement employees receive, allowing them to take time off for rest and recreation. This is usually 4 weeks of leave. Annual Leave only becomes due to employees at the completion of each year of employment, on their anniversary.
Holiday Pay is a $ figure, calculated as 8% of an employee's gross earnings since their last anniversary (or since their start date, if they’re still in the first year of employment). Unlike Annual Leave, Holiday Pay isn't a balance that employees can use for taking leave - it exists mainly to ensure employees are reimbursed properly if they leave part way through the year, to account for the fact that their Annual Leave hasn't yet become due.
There's no limit to how much leave in advance an employee can take in PayHero - employers and employees should reach an agreement as to whether or not leave can be taken before becoming due.
Be aware that if an employee takes leave in advance and finishes employment with you before becoming entitled to more, any leave taken in advance will be recouped in their final pay. If the employee doesn't have enough Holiday Pay to cover the deductions, their final pay may be negative and require further attention.
Yes, it's always compliant to provide an employee with more than the minimum entitlement to leave.
If you're wanting to permanently increase the amount of leave that becomes due to the employee each year, you can learn how here: How do I increase my employee's Annual Leave entitlement?
If you're wanting to add an extra amount to their balance as a one-off, you can simply edit their Current Leave Due balance on their Leave tab. When manually editing an employee's leave balances, we also recommend adding a note to the Employee's Notes tab, for historical recordkeeping.
Special rules apply to the Annual Leave Rates when your employee takes leave after their Parental Leave period.
Annual Leave Due Prior to Parental Leave
Any Annual Leave that was due to the employee prior to their parental leave will be paid, like usual, at the higher rate of the employees Ordinary or Average Weekly Pay Per Day. See our Annual Leave Rates support article for further details on these calculations.
Annual Leave Due During Parental Leave or in the 12 Months Following
Annual Leave that becomes due while the employee is on parental leave, or in the subsequent 12 months following, will be paid at the employee's Average Weekly Pay Per Day. See MBIE's article here for additional details.
Learn how to handle Parental Leave in PayHero to ensure these settings are accurately applied for you: Parental Leave.
This will apply when an employee who has previously been on Holiday Pay As You Go takes Annual Leave. If the employee simply switched to receiving Annual Leave, the total amount of Holiday Pay they received is deducted from Annual Leave payments to ensure they aren't essentially paid twice for the same portion of entitlement.
Learn more here: Why is there a Holidays Already Paid pay line?
Absolutely! If you'd like PayHero to check your employees' hours worked and extend their Annual Leave anniversary where appropriate, you can check out the Automatic Extension of Holiday Anniversary setting.
Not a problem! When creating a request for a single day of leave, the portion of the day being taken can be specified via the Part Day field.
If you and the employee agree to allow leave in smaller increments than quarter days, the leave can be further adjusted once it's included in a draft pay by editing the Quantity. If the Quantity is set to Hours, you may specify the hours and rate the leave is to be paid at, but you must also specify Days, as that will determine how the employee's leave balance is reduced.
In this example, the employee works an 8-hour day but the employer has agreed to process 5 hours of leave, so the appropriate portion of their leave balance to be reduced is 0.63 Days.
Our recommended approach is always to process leave via Leave Requests. Doing so ensures PayHero automates as much of the process as possible for you and creates a detailed record in the Leave tab for future reference.
However, if you'd prefer to enter Annual Leave manually into a draft pay, you can do so by adding the 'Annual Leave Taken' pay item to the employee's earnings. See the relevant section of the following article for details on this process: Processing Leave
Yes, in some circumstances employees can cash up Annual Leave. It's important to note that there are restrictions about when Annual Leave can be cashed up, and how much, so make sure to familiarise yourself with the rules outlined by MBIE here first.
You can learn how to cash up Annual Leave in PayHero here: Cashing Up Annual Leave