PayHero keeps track of your employees' gross earnings throughout their current entitlement year and calculates 8% of this as Holiday Pay, which is mainly used when employees finish employment before becoming entitled to their next allocation of Annual Leave.
Holiday Pay shouldn't be confused with Annual Leave, which you can learn more about here: Annual Leave
Check out the sections below to learn how Holiday Pay works:
- What is Holiday Pay?
- How does Holiday Pay work in PayHero?
- Holiday Pay Balances
- Paying Holiday Pay
- Frequently Asked Questions
An employee's Holiday Pay is 8% of their gross earnings since their last anniversary (or since their start date, if they’re still in the first year of employment), represented as a dollar figure.
All employees are entitled to Holiday Pay. However, there are two key points to be aware of:
- Holiday Pay shouldn't be confused with Annual Leave. Holiday Pay and Annual Leave are calculated separately, and Holiday Pay is not a dollar figure representation of an employee's Annual Leave balance. Learn more about Annual Leave here: Annual Leave
- Holiday Pay is a balance which is not commonly 'owed' to an employee or paid out during their employment period - it applies only in their Final Pay, during their first Close Down Period, or within each pay as Holiday Pay As You Go on certain types of contracts.
More information on these points can be found in the Paying Holiday Pay section below.
Holiday Pay is designed to account for the fact that Annual Leave only becomes due to employees on their 12-month anniversary each year. As a result, employees who finish employment between anniversaries have the entitlement of Holiday Pay applied, additional to any weeks of leave due, in order to account for the portion of the year that has passed since their last anniversary.
Holiday Pay is automatically accrued at a rate of 8% of the employee's Gross Earnings in each pay (unless the employee has a higher Holiday Pay % specified). It's the only leave balance which is stored as a dollar value, due to its nature as a balance which is not taken as time off.
For employees who do not receive Holiday Pay on an as-you-go basis, their Holiday Pay balance will simply increase with each pay. On their anniversary each year, the employee becomes entitled to 4 weeks of Annual Leave, and their Holiday Pay balance is reset to $0 to begin accruing again for the new entitlement year.
Employees who receive Holiday Pay As You Go (HPAYG) will receive their Holiday Pay as part of each pay instead of accruing it over the course of an entitlement year. Note that there are strict rules for when you may apply HPAYG for an employee - it should not be assumed that just because an employee is 'casual' they can receive HPAYG. Learn more from MBIE on when HPAYG may be applied here: Pay-as-you-go, and see how you can apply HPAYG in PayHero here: Holiday Pay As You Go.
An employee's Holiday Pay balances can be viewed at the top of the employee's Leave tab.
The balances displayed are:
Holiday Earnings - The employee's gross earnings from their Holiday Pay 'Since' date, excluding any earnings that aren't eligible for Holiday Pay (such as reimbursements, discretionary payments and expense reimbursements. A full list of inclusions/exclusions can be found in this article from MBIE).
Holiday Pay % - The percentage of the employee's gross earnings that will be calculated as Holiday Pay. 8% is the default value but can be increased when agreed. Learn more here: How do I increase my employee's Annual Leave entitlement?
Holiday Pay Accrued - The total holiday pay accrual since the last leave anniversary. This will be calculated automatically, based on the Holiday Earnings and Holiday Pay %.
Employees who receive Holiday Pay As You Go (or have previously) will have an extra field appear.
Holidays Paid Out - The total amount of Holiday Pay that has been paid. This will typically be the same as 'Holiday Pay Accrued' if the employee has always been on HPAYG, but may show a different figure depending on how this has been handled. See the Frequently Asked Questions for more information.
To view the history of when Holiday Pay balances have changed, 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 Holiday Pay details displayed are:
Holiday Pay Due ($) - The total holiday pay due to the employee at the time of the change. This is 8% of the employee's gross earnings since the last anniversary, less any holiday pay paid.
Holiday Pay Accrued ($) - For 'Pay' actions, this will show the total holiday pay accrued in this pay. This will be 8% of the gross earnings in the pay (less any exempt earnings, such as discretionary payments).
Holiday Pay Paid ($) - For 'Pay' actions, this will show the amount of any holiday pay paid in the pay. This should only contain a value for employees on Holiday Pay As You Go, or when processing a Close Down Period for an employee in their first year of employment, or in a Final Pay.
Holiday Pay is paid out to employees in only three circumstances:
Final Pay - If your employee is finishing their employment, PayHero will automatically pay out their entitlements when you process their final pay. Learn more here: Final Pay
Annual Close Down - If your business has an annual close down period, employees who started in the previous 12 months won't yet have any Annual Leave due, so will need to be paid out their Holiday Pay. PayHero can handle this for you - learn more here: Close Down Periods
Holiday Pay As You Go (HPAYG) - In some cases, employers and employees may agree to pay Holiday Pay in every pay, in lieu of the employee's normal entitlement to Annual Leave and Holiday Pay accruals. It's important to note that there are limited circumstances in which this approach is compliant. Learn more from MBIE on when you may apply HPAYG here: Pay-as-you-go, and see how you can apply HPAYG in PayHero here: Holiday Pay As You Go
Frequently Asked Questions
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.
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.
Our How Annual Leave and Holiday Pay Work article has more details on the relationship between the two.
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?
This typically indicates that the employee has previously been on Holiday Pay As You Go and has moved to permanent employment. The Holiday Pay they received as HPAYG is moved to Holidays Paid Out, and they begin to accrue Holiday Pay going forward.
More details can be seen here: Changing Pay-As-You-Go Employees to Permanent