Onboarding - Pay period proportioning for final pay
Some payroll systems calculate all of the earnings in the pay period with the rollover date to current year gross which results in a higher final pay figure. At Smartly, we proportion the Earned leave. This remains compliant as Employment NZ states that
- The employee is paid for any remaining annual holidays that they are entitled to. These are paid at the rate of the greater of ordinary weekly pay or average weekly earnings, as if the holidays were being taken at the end of the employment, plus
- The employee gets an annual holiday payment of 8% of their gross earnings since their last anniversary date for annual holidays.
Scenario:
Joe started working for the company on 15 July 2022. He is on $80k per year, works 8 hours per day, 5 days per week, and is paid monthly on the 1st of the following month for the month worked prior. Eg. He is paid on 1 August for work carried out 1st – 31st July.
Joe resigns after a year, and his last day with the company is 1 August 2023.
80k salary (after 1 full year) = $1,538.46 a week.
4 weeks Earned Leave x $1,538.46 = $6,153.84
8% entitlement on Earned Leave: $6,153.84 x 8% = $492.31
$6,153.84 + $492.31 = $6,646.15 (Earned Leave Value)
Current gross since last anniversary: $3,333.33 (15th – 31st July) + $307.69 (1 day worked) = $3,641.02
8% of current gross: $3,641.02 X 8% = $291.28
Termination Entitlement $6,646.15 + $291.28 = $6,937.43
Other systems may not proportion the month:
4 weeks X $1,538.46 (per week) = $6,153.84 (Earned leave for 15 July 2022 – 14 July 2023)
8% entitlement on Earned Leave $6,153.84 x 8% = $492.31
$6,153.84 + $492.31 = $6,646.15 (Earned Leave Value)
*Joe’s earnings since last anniversary: $6,666.67 + $307.69 = $6,974.36. (The other system may not proportion 1st – 14th January when it should just be earnings from 15th July 2023.)
8% of current gross: $6,974.36 X 8% = $557.95
Termination Entitlement $6,646.15 + $557.95 = $7,204.10
$7,204.10 - $6,937.43 = $266.67.
So an employer using Smartly may pay $266.67 less than other systems while also remaining compliant.