Understanding Leave Liability

You can find find an employee's leave balance in the green 'Annual leave liability' box underneath their timesheet or you can generate a report using either Employee reports or Quick reports, found under the reports/archive tab.

The dollar value of leave that an employee is owed in a final pay is called leave liability and is equal to the value of all the types of leave they have earned - Annual Holidays, Alternative holidays (days in lieu) and and Holiday Pay. Sick leave is not part of your employee's leave liability.

Liability for 'Rate set as per the holidays act' or Annual Leave

This is what leave liability looks like for a regular employee who is accruing leave as per the Holidays Act on the timesheet entry and reporting page:

  1. Days of allocated leave are added after each leave anniversary. The Holidays Act says that leave becomes available after 12 months of employment. 8% of the dollar value of allocated days annual leave is added to the 8% of gross wages since most recent leave anniversary. If any annual holidays have been taken in advance of the anniversary, this figure will be negative.
  2. The 8% of gross wages is accrued between leave anniversaries. It is effectively adding up towards the annual 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 is deducted from the 8% of gross wages resulting in the 'Total annual leave liability' at the bottom of the table.
  4. Any alternative days gained from working on a public holiday or a day not normally worked will show here. The value of an alternate day is an estimate based on the employee's most recently paid day. The value of those days is added to the 'Total annual leave liability' figure. 8% of the value of these days is added to the 8% of gross wages since most recent leave anniversary.
  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 the business and this figure is not included in the the liability total.
  6. This is the 'Total annual leave liability'. If they were to leave this would all need to be paid out.

Liability for temporary employees on 'A % of gross earnings (temp and irregular scenario)' or Holiday Pay

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

  1. This is the amount of holiday pay that the employee has accrued.
  2. Sick leave may be earned by temporary or irregular employees if they meet the requirements. Sick leave is not included in leave liability totals.
  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 - Youtube video on understanding Annual Leave

You can learn more about leave and which type is right for your employee by checking the  Employment New Zealand website or calling them on 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 higher rate of:

  • the employee's 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 pay out at the higher rate.

Checking the leave liability by creating employee reports

This report will provide you with a summary of leave liability owed for all the employees plus a breakdown for every single employee.

  1. Go to the reports/archive tab.
  2. Select the employee reports option.
  3. The report will show the details for the current financial year.
  4. The first section shows the 'Year totals for all employees'.
  5. The leave taken summary.
  6. The total leave liability.

As you scroll down the page you can find the leave taken summary, and total leave liability for each individual employee.

This information can be generated as a CSV file and downloaded. You can open and view CSVs in any spreadsheet software. You can set a specif to-date here:

Employee YTD report - Google Chrome