Thankyou Payroll help Employee SettingsUnderstanding Leave Liability

Understanding Leave Liability

Leave liability is what you will need to pay out to an employee. It is all the types of leave they have earned, and you can find this green liability box on the timesheet page, underneath the timesheet entry area.

This is what a leave liability will look like for a regular employee who is accruing leave as per the Holidays Act:

  1. Days of allocated leave are added after each leave anniversary. This is because the Holidays Act says that leave becomes available after 12 months of employment. There will be a negative balance here if leave has been taken in advance of the anniversary.
  2. 8% of the gross wages are accrued between leave anniversaries. It is effectively adding up towards the allocation, and will disappear when converted into days. This can be taken as leave in advance at the employer's discretion.
  3. If leave is taken in advance (resulting in a negative balance in line 1.) then the dollar value of that leave will show here. This can then be deducted from the dollar value shown in line 2.
  4. Any alternative days gained from working a public holiday or a day not normally worked will show here.
  5. 5 days of sick leave will be added after 6 months of employment as long as the employee meets the minimum requirements. Another 5 days will be added every 12 months after that. Unused sick leave is not paid out when an employee leaves.
  6. This is the total amount owing to the employee. If they were to leave this would all need to be paid out.

This is what the leave liability will look like for an employee who is on a % of gross earnings accumulated to pay later (usually used for temporary and irregular scenarios), or holiday pay:

  1. This is the amount of holiday pay that the employee is owed
  2. Sick leave may be earned by temporary or irregular employees if they meet the requirements.
  3. This is the total leave liability that will be paid out at the employee's request or when they end their employment.

For a comprehensive explanation of how allocated and accrued leave are worked out please watch this video - https://www.youtube.com/watch?v=gfymvHDp-jM

You can learn more about leave and which type is right for your employee by contacting Employment New Zealand - https://www.employment.govt.nz/ - 0800 20 90 20

Ordinary vs. Average Weekly Rate

For an employee who takes all or part of their annual holiday entitlement, the annual holidays are paid at the rate of at least the greater amount of:

  • ordinary weekly pay (OWP) as at the beginning of the annual holiday, or
  • the employee’s average weekly earnings (AWE) for the 12 months immediately before the end of the last pay period before the annual holiday.

Thankyou Payroll automatically calculates these amounts for you and will automatically pay out at the higher rate.