Payroll Bulletin 7

23 May

GROSS EARNINGS

Gross earnings to calculate payment for holidays and leave

Gross earnings are used in a few different situations to calculate payment for holidays and leave.

When to use Gross earnings in calculations

Gross earnings are used to calculate:

ordinary weekly pay for determining payment for annual holidays

average weekly earnings for determining payment for annual holidays. Employers must pay employees at whichever amount is higher - their ordinary weekly pay at the time of the leave, or their average weekly earnings over the 12 months before the holiday is taken

average daily pay (when this can be used instead of relevant daily pay) for calculating payment for public holidays, sick and bereavement leave and alternative holidays

payment for annual holidays if the employee meets the criteria for being paid on an 8% pay-as-you-go basis

the 8% of gross earnings component in an employee’s final pay.

What “Gross earnings” mean

For the purposes of calculating payments for holidays and leave, gross earnings mean all payments that the employer is required to pay to the employee under the employee’s employment agreement for the period during which the earnings are being assessed. If all of the components of gross earnings are not included in the relevant calculations for holidays and leave, the employee will likely be underpaid and the employer will not comply with the Holidays Act 2003.

What “Gross earnings” include

Gross earnings include (but are not limited to):

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salary and wages
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allowances (but not reimbursing allowances)

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all overtime
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piece rates
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productivity or performance payments, e.g., most commissions, bonuses, and incentives

payment for annual holidays and public holidays

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payment for sick and bereavement leave
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the cash value of board and lodgings supplied

the first week of compensation payable by the employer under s.98 of the Accident Compensation Act 2001

any other payments that are required to be made under the terms of the employment agreement.

What “Gross earnings” don’t generally include

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reimbursements
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any weekly compensation payable under the Accident Compensation Act 2001 that the employer doesn’t have to make

payment for leave from work when an employee is on volunteers leave for military service

payment for annual holidays that have been paid out instead of taken (i.e., up to one week per entitlement year)

any payments that the employer is not bound, by the terms of the employee’s employment agreement, to pay the employee. These payments will be truly discretionary and will be relatively rare

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redundancy payments
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Please note that

If an employment agreement states that a payment is included in gross earnings, then it must be included even if that type of payment would not usually be included.

If it is unclear whether a payment should be included in gross earnings, it is recommended that employers err on the side of caution and include the payment or obtain legal advice before deciding to exclude the payment. For example, whether employee share benefits are included in gross earnings will depend on their specific nature.

Links to further information:

If you have any questions or need further information, please don't hesitate to contact Olga at olga@topflight.co.nz