What is paid annual leave and why you need to track it
Paid annual leave obligations can be a bit of a headache for managers and payroll processing.
Knowing what employees are entitled to, how much paid leave they have accrued and how much paid leave casual workers get, can slow down your work day.
Luckily, we are going through exactly what your employer obligations for annual leave are and how to make it as simple as possible when paying it out.
What is paid annual leave?
Paid annual leave is time that employees can take off purely for rest and recreation.
This is also known as annual holiday pay or holiday pay, and is different to sick leave.
In New Zealand, employees generally become entitled to annual leave 12 months after they start employment and every subsequent 12 months. Employees can apply to take this leave and be paid for it when they choose (according to staffing needs and with enough notice).
Annual leave is different to public holidays in New Zealand. Public holidays are paid regardless of whether an employee applies for leave or not, provided their usual working day falls on one of the 12 public holidays.
Employers obligations around paid annual leave in New Zealand
Minimum leave requirements apply to all employees, whether they are full-time, part-time, fixed term or casual. Most employees are eligible for four weeks of paid annual leave. They become entitled to this leave after 12 months of continuous service and every subsequent 12 months. However, some employers may allow their employees to accrue their leave over time from the beginning of their service.
Employees are allowed to take at least two weeks off at once if they choose, and can cash in one week of annual leave for each year of entitlement unless you have policies stating otherwise. If you want an employee to take annual leave and can not come to an agreement, you have to give them at least 14 days notice to take it.
As well as annual leave, eligible full-time employees are also entitled to the following types of paid leave:
- 10 paid sick days (available after 6 months of employment) with an additional 10 days each subsequent 12 months up to a cap of 20 days)
- 3 days of paid bereavement leave for each bereavement of a close family member, or 1 day for each bereavement of any other person to whom the employee feels they have suffered a bereavement (available after 6 months of employment)
- 10 days paid family violence leave each year (with no carry over)
- 26 weeks paid maternity leave for eligible people
- 12 New Zealand public holidays
- Extended leave for work-place injuries (80% of salary in first week off)
You may give employees more than the minimum paid leave, and they may apply for more unpaid leave. Everything outside of this list is by negotiation and should be put in an employment agreement prior to starting work.
Paid annual leave as part of an employee’s pay
In certain circumstances, an employer may regularly pay annual holiday pay with the employee’s normal pay. This is in the case where the employee is on a fixed term contract of less than 12 months, or if they work so intermittently or irregularly that it is not possible to determine what 4 weeks is for the employee.
If these circumstances apply an employer may pay the employee 8% of the employee’s gross earnings each pay. An employer will also need to:
- Include clear terms for the 8% in their written employment agreement
- Make sure the employee knows that their annual leave is being paid out each pay rather than being accrued
- Separate the 8% annual leave payment clearly on their payslip
Regardless of their work setup, all New Zealand employees are entitled to annual leave. This is just a reality of employing people in New Zealand.
Why should businesses track employee leave?
Leave management means you don’t have to keep track of everything above in your head! Although all the rules can be a little bit complicated, it can be costly to get it wrong and have to back pay employees. This is why it is so important to track employee leave accurately.
To manage resources
Keeping track of annual leave helps you to manage both personnel and finances better.
From a social perspective, annual leave helps keep people refreshed and allows them to rest and do things outside of work. This balance is an important part of managing your employees!
From a financial perspective, tracking paid leave helps you manage payroll easier. For example, if someone has accrued a lot of leave and is leaving the business soon, this can result in a large lump sum which can be difficult for businesses with low cash flow. Leave management helps you address this ahead of time and set policies for how much leave an employee can accumulate before being requested to take some leave.
Leave and holiday planning
Annual leave tracking lets you keep track of who might be taking leave and how much they have accrued. For example, if an employee wants to take time off around a busy period, tracking annual leave helps you to manage HR resources and arrange cover in time.
With Smartly, employees can see how much leave is accrued before applying for paid annual leave. This makes your job even easier!
Reduced absenteeism
A Work and Wellness study showed that New Zealand businesses lost around $1.51 billion due to absenteeism in 2016 alone.
Employees do have genuine reasons for taking leave and are entitled to it. However, annual leave tracking helps you to keep an eye on who is taking leave for what, how much they are entitled to, and when it should be unpaid leave. This way, employees still get their required leave and you don’t lose money that should not be paid.
Employee confidence and wellbeing
A good manager knows that annual leave is a positive thing for mental and physical well being.
Although you can still deny applications for leave that don’t give enough notice or during an exceptionally busy season, you should still approve all reasonable requests for employee leave. This gives workers confidence in your organisation and that they are being compensated according to legal guidelines.
For super simple leave management, payroll software like Smartly lets employees apply for leave right in their timesheet app. No more paperwork or miscalculated paid leave!
To understand the financial impact on business
It is the employer’s responsibility to pay annual leave to employees. This can have a big financial impact on businesses if they don’t do it correctly or understand their obligations.
For example, casual workers can end up costing more on payroll from week to week due to the extra 8% added to their paycheck. What is worse is that employees that are not entitled to be paid at 8% pay as you go leave may need to have leave accrued for them instead, which they can then claim on top of payments already made.
Employees leaving are entitled to any leave owing to them which can be large lump sums.
Never approving leave is non compliant, and regardless can result in employee dissatisfaction and turnover which costs a lot for HR and replacements over time.
All of these financial impacts can be monitored and addressed using leave management software like Smartly.
Use a leave management system to track annual leave
Digital leave management software is the easiest way to avoid penalties and payouts for annual leave. Here are just a few reasons why payroll and leave systems make your life easier
Eliminate manual, paper-based processes
As an employer, you are required to keep a paper trail of annual leave payments and applications as part of compliant record keeping. However that doesn’t mean you have to use physical pieces of paper for leave applications!
With Smartly, everything can be done electronically. Employees can track their timesheets, see future leave entitlements and apply for leave all in their employee self-service app. On your end, you can keep track of who is applying for leave, how much they are owed, and approve their requests with the click of a button.
Monitor leave in real-time
Leave management software lets you see paid leave accruing throughout the year.
This makes it easier to apply and approve leave, request employees take their leave before too much builds up, and calculate the correct amount to add to their payslip.
Be compliant with regulatory leave requirements
Does someone have enough entitled leave to cash out some of it? Should you be adding 8% pay as you go leave for an employee? Have they used up all their paid annual leave? How much leave in advance can an employee use?
All of these questions are answered automatically when you use a leave management software like Smartly! Investing in payroll services is much more cost effective than getting hit with penalties for not following leave regulations.
Simple paid annual leave management with Smartly
Managing paid annual leave doesn’t have to be headache-inducing. With Smartly, employees can view their leave balances, future balances and put in leave requests on their app. Managers can view requests, edit, approve or decline leave in their app. All of this flows through to payroll to ensure you meet your annual leave obligations as an employer . Smartly is the simple way to sort your leave management!
Not using Smartly yet?
If you want to learn more about how your day-to-day tasks can be made simpler, you can chat to us to get some insight on how payroll software could benefit your business. Smartly can make the complex tasks seem simple including payroll, timesheets, leave and more! Smartly takes care of most of the faffing, so you can focus on the important stuff.